Is Premier Investments Limited (ASX:PMV) Potentially Undervalued?

Premier Investments Limited (ASX:PMV), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the ASX. 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 Premier Investments’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Premier Investments

Is Premier Investments still cheap?

According to my valuation model, Premier Investments seems to be fairly priced at around 0.11% above my intrinsic value, which means if you buy Premier Investments today, you’d be paying a relatively reasonable price for it. And if you believe that the stock is really worth A$28.63, there’s only an insignificant downside when the price falls to its real value. Furthermore, Premier Investments’s low beta implies that the stock is less volatile than the wider market.

What does the future of Premier Investments look like?

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. However, with a negative profit growth of -8.9% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Premier Investments. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Currently, PMV appears to be trading around its fair value, 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 optimal 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 an eye on PMV 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 crystalize your views on PMV should the price fluctuate below its true value.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To that end, you should learn about the 2 warning signs we've spotted with Premier Investments (including 1 which is a bit concerning).

If you are no longer interested in Premier Investments, 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. 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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