Is Now An Opportune Moment To Examine Nine Entertainment Co. Holdings Limited (ASX:NEC)?

By
Simply Wall St
Published
February 03, 2022
ASX:NEC
Source: Shutterstock

While Nine Entertainment Co. Holdings Limited (ASX:NEC) might not be the most widely known stock at the moment, it saw a decent share price growth in the teens level on the ASX over the last few months. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine Nine Entertainment Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Nine Entertainment Holdings

What is Nine Entertainment Holdings worth?

According to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. 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 27.36x is currently well-above the industry average of 19.42x, meaning that it is trading at a more expensive price relative to its peers. Furthermore, Nine Entertainment Holdings’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach levels around its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

Can we expect growth from Nine Entertainment Holdings?

earnings-and-revenue-growth
ASX:NEC Earnings and Revenue Growth February 3rd 2022

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. With profit expected to grow by 100% over the next couple of years, the future seems bright for Nine Entertainment 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? It seems like the market has well and truly priced in NEC’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe NEC should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. 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 NEC for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for NEC, which means it’s worth diving deeper into other factors 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 Nine Entertainment Holdings at this point in time. While conducting our analysis, we found that Nine Entertainment Holdings has 2 warning signs and it would be unwise to ignore them.

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