Is Now An Opportune Moment To Examine Richelieu Hardware Ltd. (TSE:RCH)?

Richelieu Hardware Ltd. (TSE:RCH), might not be a large cap stock, but it had a relatively subdued couple of weeks in terms of changes in share price, which continued to float around the range of CA$37.62 to CA$41.19. However, is this the true valuation level of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Richelieu Hardware’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Richelieu Hardware

What Is Richelieu Hardware Worth?

According to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. 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 Richelieu Hardware’s ratio of 21.6x is above its peer average of 10.31x, which suggests the stock is trading at a higher price compared to the Trade Distributors industry. Another thing to keep in mind is that Richelieu Hardware’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.

Can we expect growth from Richelieu Hardware?

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 -2.1% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for Richelieu Hardware. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? If you believe RCH should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. Given the risk from a negative growth outlook, this could be the right time to reduce your total portfolio risk. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on RCH for a while, now may not be the best time to enter into the stock. The price has climbed past its industry peers, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Should the price fall in the future, will you be well-informed enough to buy?

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Richelieu Hardware, and understanding it should be part of your investment process.

If you are no longer interested in Richelieu Hardware, 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.