Stock Analysis

When Should You Buy Morguard Corporation (TSE:MRC)?

TSX:MRC
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Morguard Corporation (TSE:MRC), is not the largest company out there, but it saw significant share price movement during recent months on the TSX, rising to highs of CA$150 and falling to the lows of CA$113. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Morguard's current trading price of CA$113 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Morguard’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Morguard

Is Morguard still cheap?

Morguard 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. I’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 24.52x is currently well-above the industry average of 15.79x, meaning that it is trading at a more expensive price relative to its peers. But, is there another opportunity to buy low in the future? Since Morguard’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from Morguard?

earnings-and-revenue-growth
TSX:MRC Earnings and Revenue Growth September 10th 2020

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. However, with an expected decline of -1.6% in revenues over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Morguard. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? If you believe MRC 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. Given the risk from a negative growth outlook, this could be the right time to reduce your total portfolio risk. 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 an eye on MRC for a while, now may not be the best time to enter into the stock. The price has climbed past its industry peers, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Should the price fall in the future, will you be well-informed enough to buy?

If you'd like to know more about Morguard as a business, it's important to be aware of any risks it's facing. To help with this, we've discovered 4 warning signs (1 is a bit concerning!) that you ought to be aware of before buying any shares in Morguard.

If you are no longer interested in Morguard, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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