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TheWorks.co.uk plc (LON:WRKS), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the LSE. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today I will analyse the most recent data on TheWorks.co.uk’s outlook and valuation to see if the opportunity still exists.
See our latest analysis for TheWorks.co.uk
What Is TheWorks.co.uk Worth?
TheWorks.co.uk is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that TheWorks.co.uk’s ratio of 22.2x is above its peer average of 11.24x, which suggests the stock is trading at a higher price compared to the Specialty Retail industry. But, is there another opportunity to buy low in the future? Given that TheWorks.co.uk’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of TheWorks.co.uk look like?
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. TheWorks.co.uk's 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 well and truly priced in WRKS’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe WRKS should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on WRKS for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for WRKS, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.