At AU$3.07, Is It Time To Put Healius Limited (ASX:HLS) On Your Watch List?

While Healius Limited (ASX:HLS) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the ASX over the last few months, increasing to AU$3.48 at one point, and dropping to the lows of AU$2.88. 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 Healius' current trading price of AU$3.07 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 Healius’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 Healius

Is Healius Still Cheap?

Great news for investors – Healius is still trading at a fairly cheap price according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 Healius’s ratio of 5.95x is below its peer average of 23.86x, which indicates the stock is trading at a lower price compared to the Healthcare industry. Another thing to keep in mind is that Healius’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its industry peers, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.

Can we expect growth from Healius?

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 Healius, at least in the near future.

What This Means For You

Are you a shareholder? Although HLS is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. Consider whether you want to increase your portfolio exposure to HLS, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on HLS for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

So while earnings quality is important, it's equally important to consider the risks facing Healius at this point in time. Be aware that Healius is showing 2 warning signs in our investment analysis and 1 of those is a bit unpleasant...

If you are no longer interested in Healius, 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. 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.