Is There Now An Opportunity In Cedar Woods Properties Limited (ASX:CWP)?

While Cedar Woods Properties Limited (ASX:CWP) 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. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today I will analyse the most recent data on Cedar Woods Properties’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Cedar Woods Properties

What's the opportunity in Cedar Woods Properties?

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. 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 13.9x is currently trading slightly above its industry peers’ ratio of 12.34x, which means if you buy Cedar Woods Properties today, you’d be paying a relatively sensible price for it. And if you believe that Cedar Woods Properties should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Is there another opportunity to buy low in the future? Since Cedar Woods Properties’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.

What kind of growth will Cedar Woods Properties generate?

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. 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 26% over the next couple of years, the future seems bright for Cedar Woods Properties. 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? CWP’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 track record of its management team. Have these factors changed since the last time you looked at CWP? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on CWP, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for CWP, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 2 warning signs for Cedar Woods Properties you should know about.

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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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