What Does Hardwoods Distribution Inc.'s (TSE:HDI) Share Price Indicate?

Hardwoods Distribution Inc. (TSE:HDI), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the TSX. 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 take a look at Hardwoods Distribution’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Hardwoods Distribution

What Is Hardwoods Distribution Worth?

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. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 4.27x is currently trading slightly below its industry peers’ ratio of 4.64x, which means if you buy Hardwoods Distribution today, you’d be paying a decent price for it. And if you believe that Hardwoods Distribution should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Is there another opportunity to buy low in the future? Since Hardwoods Distribution’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 Hardwoods Distribution 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. 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 -2.2% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for Hardwoods Distribution. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? HDI 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 reduce the risk in 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 HDI, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on HDI for a while, now may not be the most advantageous 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 HDI 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. When we did our research, we found 4 warning signs for Hardwoods Distribution (3 are a bit unpleasant!) that we believe deserve your full attention.

If you are no longer interested in Hardwoods Distribution, 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.