Is There Now An Opportunity In Richelieu Hardware Ltd. (TSE:RCH)?

Richelieu Hardware Ltd. (TSE:RCH), might not be a large cap stock, but it led the TSX gainers with a relatively large price hike in the past couple of weeks. The recent share price gains has brought the company back closer to its yearly peak. Less-covered, small caps tend to present 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 examine Richelieu Hardware’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

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What's The Opportunity In Richelieu Hardware?

Richelieu Hardware appears to be expensive according to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. We’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 26.42x is currently well-above the industry average of 14.85x, meaning that it is trading at a more expensive price relative to its peers. 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.

See our latest analysis for Richelieu Hardware

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. 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. Though in the case of Richelieu Hardware, it is expected to deliver a relatively unexciting earnings growth of 7.5%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for Richelieu Hardware, at least in the near term.

What This Means For You

Are you a shareholder? RCH’s future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? 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. 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 tabs on RCH for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.

Diving deeper into the forecasts for Richelieu Hardware 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.

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.

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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.