In This Article:
Australian Clinical Labs Limited (ASX:ACL), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the ASX over the last few months. The recent jump in the share price has meant that the company is trading at close to its 52-week high. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s examine Australian Clinical Labs’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
See our latest analysis for Australian Clinical Labs
What's The Opportunity In Australian Clinical Labs?
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. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 29.7x is currently trading slightly below its industry peers’ ratio of 33x, which means if you buy Australian Clinical Labs today, you’d be paying a decent price for it. And if you believe that Australian Clinical Labs should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. So, is there another chance to buy low in the future? Given that Australian Clinical Labs’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Australian Clinical Labs generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Australian Clinical Labs' earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.
What This Means For You
Are you a shareholder? It seems like the market has already priced in ACL’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 track record of its management team. Have these factors changed since the last time you looked at ACL? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?