Stock Analysis

Should You Think About Buying Black Diamond Group Limited (TSE:BDI) Now?

TSX:BDI
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Black Diamond Group Limited (TSE:BDI), 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. 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. However, could the stock still be trading at a relatively cheap price? Let’s examine Black Diamond Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out the opportunities and risks within the CA Commercial Services industry.

What's The Opportunity In Black Diamond Group?

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 11.11x is currently trading slightly below its industry peers’ ratio of 15.8x, which means if you buy Black Diamond Group today, you’d be paying a reasonable price for it. And if you believe that Black Diamond Group 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 Black Diamond Group’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 kind of growth will Black Diamond Group generate?

earnings-and-revenue-growth
TSX:BDI Earnings and Revenue Growth October 28th 2022

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. However, with a negative profit growth of -16% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for Black Diamond Group. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Currently, BDI appears to be trading around industry price multiples, 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 beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on BDI, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on BDI for a while, now may not be the most optimal 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 BDI should the price fluctuate below the industry PE ratio.

If you want to dive deeper into Black Diamond Group, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Black Diamond Group has 2 warning signs and it would be unwise to ignore them.

If you are no longer interested in Black Diamond Group, 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.