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While Transcontinental Inc. (TSE:TCL.A) might not have the largest market cap around , it saw a decent share price growth of 12% on the TSX over the last few months. The company's trading levels have approached the yearly peak, following the recent bounce in the share price. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s take a look at Transcontinental’s outlook and value based on the most recent financial data to see if the opportunity still exists.
Check out our latest analysis for Transcontinental
Is Transcontinental Still Cheap?
According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Transcontinental’s ratio of 12.85x is trading slightly below its industry peers’ ratio of 15.27x, which means if you buy Transcontinental today, you’d be paying a decent price for it. And if you believe Transcontinental should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, it seems like Transcontinental’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.
What does the future of Transcontinental look like?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by a double-digit 19% over the next couple of years, the outlook is positive for Transcontinental. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What This Means For You
Are you a shareholder? It seems like the market has already priced in TCL.A’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at TCL.A? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?