At AU$2.67, Is It Time To Put SG Fleet Group Limited (ASX:SGF) On Your Watch List?

SG Fleet Group Limited (ASX:SGF), is not the largest company out there, but it received a lot of attention from a substantial price movement on the ASX over the last few months, increasing to AU$3.06 at one point, and dropping to the lows of AU$2.67. 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 SG Fleet Group's current trading price of AU$2.67 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 SG Fleet Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for SG Fleet Group

What's the opportunity in SG Fleet Group?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio 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 16.46x is currently trading slightly below its industry peers’ ratio of 19.66x, which means if you buy SG Fleet Group today, you’d be paying a decent price for it. And if you believe that SG Fleet Group 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. Although, there may be an opportunity to buy in the future. This is because SG Fleet Group’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of SG Fleet Group look like?

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. SG Fleet Group's earnings over the next few years are expected to increase by 89%, indicating a highly optimistic future ahead. This should lead to more robust 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 SGF’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 SGF? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on SGF, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for SGF, 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.

So while earnings quality is important, it's equally important to consider the risks facing SG Fleet Group at this point in time. At Simply Wall St, we found 3 warning signs for SG Fleet Group and we think they deserve your attention.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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