Genworth Mortgage Insurance Australia Limited (ASX:GMA), operating in the financial services industry based in Australia, saw a significant share price rise of over 20% in the past couple of months on the ASX. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at Genworth Mortgage Insurance Australia’s outlook and value based on the most recent financial data to see if the opportunity still exists.
Is Genworth Mortgage Insurance Australia still cheap?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 8.9% below my intrinsic value, which means if you buy Genworth Mortgage Insurance Australia today, you’d be paying a fair price for it. And if you believe the company’s true value is A$3.61, then there’s not much of an upside to gain from mispricing. Furthermore, Genworth Mortgage Insurance Australia’s low beta implies that the stock is less volatile than the wider market.
Can we expect growth from Genworth Mortgage Insurance Australia?
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 extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Genworth Mortgage Insurance Australia, at least in the near future.
What this means for you:
Are you a shareholder? Currently, GMA appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on GMA for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on GMA should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Genworth Mortgage Insurance Australia. You can find everything you need to know about Genworth Mortgage Insurance Australia in the latest infographic research report. If you are no longer interested in Genworth Mortgage Insurance Australia, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.