Stock Analysis

Is It Time To Consider Buying Exco Technologies Limited (TSE:XTC)?

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TSX:XTC
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Exco Technologies Limited (TSE:XTC), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the TSX 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? Let’s take a look at Exco Technologies’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Exco Technologies

Is Exco Technologies still cheap?

Great news for investors – Exco Technologies is still trading at a fairly cheap price according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 Exco Technologies’s ratio of 14.08x is below its peer average of 25.01x, which indicates the stock is trading at a lower price compared to the Auto Components industry. However, given that Exco Technologies’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Exco Technologies generate?

earnings-and-revenue-growth
TSX:XTC Earnings and Revenue Growth November 27th 2020

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. With profit expected to grow by 20% over the next year, the near-term future seems bright for Exco Technologies. 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? Since XTC is currently trading below the industry PE ratio, it may be a great time to increase your holdings in the stock. With a positive profit outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current price multiple.

Are you a potential investor? If you’ve been keeping an eye on XTC for a while, now might be the time to make a leap. Its prosperous future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy XTC. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed investment decision.

Diving deeper into the forecasts for Exco Technologies mentioned earlier will help you understand how analysts view the stock going forward. Luckily, you can check out what analysts are forecasting by clicking here.

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