Is Now The Time To Look At Buying Héroux-Devtek Inc. (TSE:HRX)?

Héroux-Devtek Inc. (TSE:HRX), is not the largest company out there, but it saw a decent share price growth of 18% on the TSX over the last few months. The recent jump in the share price has meant that the company is trading around its 52-week high. With many analysts covering the 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 Héroux-Devtek’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Héroux-Devtek

What Is Héroux-Devtek Worth?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Héroux-Devtek’s ratio of 34.85x is trading slightly above its industry peers’ ratio of 31.03x, which means if you buy Héroux-Devtek today, you’d be paying a relatively reasonable price for it. And if you believe that Héroux-Devtek should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. So, is there another chance to buy low in the future? Given that Héroux-Devtek’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Héroux-Devtek?

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. Héroux-Devtek's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in HRX’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at HRX? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on HRX, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for HRX, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 2 warning signs for Héroux-Devtek (1 is a bit unpleasant) you should be familiar with.

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

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

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.