Is Lifestyle Communities Limited (ASX:LIC) Potentially Undervalued?

Lifestyle Communities Limited (ASX:LIC), 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$14.33 at one point, and dropping to the lows of AU$9.51. 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 Lifestyle Communities' current trading price of AU$9.51 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 Lifestyle Communities’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Lifestyle Communities

What's The Opportunity In Lifestyle Communities?

According to our 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. We’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 14.89x is currently trading slightly above its industry peers’ ratio of 12.8x, which means if you buy Lifestyle Communities today, you’d be paying a relatively reasonable price for it. And if you believe that Lifestyle Communities should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. So, is there another chance to buy low in the future? Given that Lifestyle Communities’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Lifestyle Communities generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 80% over the next couple of years, the future seems bright for Lifestyle Communities. 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? LIC’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at LIC? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on LIC, 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 LIC, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you want to dive deeper into Lifestyle Communities, you'd also look into what risks it is currently facing. To that end, you should learn about the 3 warning signs we've spotted with Lifestyle Communities (including 2 which are significant).

If you are no longer interested in Lifestyle Communities, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com