Should You Investigate Kelly Partners Group Holdings Limited (ASX:KPG) At AU$2.10?

While Kelly Partners Group Holdings Limited (ASX:KPG) might not be the most widely known stock at the moment, it led the ASX gainers with a relatively large price hike in the past couple of weeks. 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? Today I will analyse the most recent data on Kelly Partners Group Holdings’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Kelly Partners Group Holdings

What's the opportunity in Kelly Partners Group Holdings?

According to my 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. 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 23.76x is currently trading slightly above its industry peers’ ratio of 22.12x, which means if you buy Kelly Partners Group Holdings today, you’d be paying a relatively sensible price for it. And if you believe that Kelly Partners Group Holdings should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, it seems like Kelly Partners Group Holdings’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 kind of growth will Kelly Partners Group Holdings 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. With profit expected to more than double over the next couple of years, the future seems bright for Kelly Partners Group Holdings. 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? KPG’s optimistic future growth appears to have been factored into the current share price, 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 KPG? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on KPG, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for KPG, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you'd like to know more about Kelly Partners Group Holdings as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 5 warning signs with Kelly Partners Group Holdings, and understanding these should be part of your investment process.

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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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