Should You Investigate Richelieu Hardware Ltd. (TSE:RCH) At CA$44.21?

Richelieu Hardware Ltd. (TSE:RCH), is not the largest company out there, but it received a lot of attention from a substantial price increase on the TSX over the last few months. 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.

View our latest analysis for Richelieu Hardware

What Is Richelieu Hardware Worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 8.6% below my intrinsic value, which means if you buy Richelieu Hardware today, you’d be paying a reasonable price for it. And if you believe the company’s true value is CA$48.35, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Richelieu Hardware’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Richelieu Hardware generate?

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 negative earnings growth of -20%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What This Means For You

Are you a shareholder? RCH seems fairly priced 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 the stock, 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 most optimal time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which 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 gel your views on RCH should the price fluctuate below its true value.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For instance, we've identified 3 warning signs for Richelieu Hardware (2 make us uncomfortable) you should be familiar with.

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.