Is It Time To Consider Buying SG Fleet Group Limited (ASX:SGF)?

SG Fleet Group Limited (ASX:SGF), 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 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? Today I will analyse the most recent data on SG Fleet Group’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for SG Fleet Group

What's the opportunity in SG Fleet Group?

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. 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 SG Fleet Group’s ratio of 17.95x is trading slightly below its industry peers’ ratio of 20.97x, 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. Is there another opportunity to buy low in the future? Since SG Fleet Group’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. 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 SG Fleet Group?

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. However, with an expected decline of -5.0% in revenues over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for SG Fleet Group. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? SGF seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on SGF, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on SGF for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This 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 crystallize your views on SGF should the price fluctuate below the industry PE ratio.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've found that SG Fleet Group has 3 warning signs (1 is significant!) that deserve your attention before going any further with your analysis.

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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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