What Does Beacon Lighting Group Limited's (ASX:BLX) Share Price Indicate?

While Beacon Lighting Group Limited (ASX:BLX) might not be the most widely known stock at the moment, it saw a significant share price rise of over 20% in the past couple of months on the ASX. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s examine Beacon Lighting Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Beacon Lighting Group

What's The Opportunity In Beacon Lighting Group?

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. 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 Beacon Lighting Group’s ratio of 14.03x is trading slightly above its industry peers’ ratio of 9.79x, which means if you buy Beacon Lighting Group today, you’d be paying a relatively sensible price for it. And if you believe that Beacon Lighting Group 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 Beacon Lighting Group’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 does the future of Beacon Lighting Group look like?

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. However, with a negative profit growth of -10% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Beacon Lighting Group. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? BLX seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on BLX, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on BLX for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystallize your views on BLX should the price fluctuate below the industry PE ratio.

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 1 warning sign for Beacon Lighting Group you should know about.

If you are no longer interested in Beacon Lighting Group, 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.