At AU$11.49, Is Nick Scali Limited (ASX:NCK) Worth Looking At Closely?

While Nick Scali Limited (ASX:NCK) 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. 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. But what if there is still an opportunity to buy? Let’s examine Nick Scali’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Nick Scali

What is Nick Scali worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 16% below my intrinsic value, which means if you buy Nick Scali today, you’d be paying a fair price for it. And if you believe the company’s true value is A$13.63, then there’s not much of an upside to gain from mispricing. Is there another opportunity to buy low in the future? Since Nick Scali’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 Nick Scali 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 a negative profit growth of -14% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Nick Scali. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? NCK seems fairly priced 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 the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on NCK for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, 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 gel your views on NCK should the price fluctuate below its true value.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. To that end, you should learn about the 2 warning signs we've spotted with Nick Scali (including 1 which shouldn't be ignored).

If you are no longer interested in Nick Scali, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

If you decide to trade Nick Scali, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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