Is Pact Group Holdings Ltd (ASX:PGH) Potentially Undervalued?

Pact Group Holdings Ltd (ASX:PGH), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the ASX over the last few months. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s take a look at Pact Group Holdings’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Pact Group Holdings

What is Pact Group Holdings worth?

The stock is currently trading at AU$3.90 on the share market, which means it is overvalued by 34% compared to my intrinsic value of A$2.90. This means that the buying opportunity has probably disappeared for now. But, is there another opportunity to buy low in the future? Given that Pact Group Holdings’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of Pact Group Holdings look like?

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 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 Pact Group Holdings, at least in the near future.

What this means for you:

Are you a shareholder? If you believe PGH should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. Given the risk from a negative growth outlook, this could be the right time to de-risk your portfolio. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on PGH for a while, now may not be the best time to enter into the stock. Its price has risen beyond its true value, on top of a negative future outlook. However, there are also other important factors which we haven’t considered today, such as the track record of its management. Should the price fall in the future, will you be well-informed enough to buy?

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. When we did our research, we found 4 warning signs for Pact Group Holdings (1 makes us a bit uncomfortable!) that we believe deserve your full attention.

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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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