When Should You Buy Super Retail Group Limited (ASX:SUL)?

Super Retail Group Limited (ASX:SUL), 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. As a mid-cap 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? Today I will analyse the most recent data on Super Retail Group’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Super Retail Group

Is Super Retail Group Still Cheap?

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 Super Retail Group’s ratio of 12.95x is trading in-line with its industry peers’ ratio, which means if you buy Super Retail Group today, you’d be paying a relatively sensible price for it. Although, there may be an opportunity to buy in the future. This is because Super Retail Group’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Super Retail Group 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. However, with a negative profit growth of -6.3% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Super Retail Group. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Currently, SUL appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in 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 SUL, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on SUL 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 gel your views on SUL should the price fluctuate below the industry PE ratio.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Super Retail Group (of which 1 is significant!) you should know about.

If you are no longer interested in Super Retail 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.