At CA$16.41, Is It Time To Put Acadian Timber Corp. (TSE:ADN) On Your Watch List?

Acadian Timber Corp. (TSE:ADN), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the TSX. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at Acadian Timber’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Acadian Timber

What's the opportunity in Acadian Timber?

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 11.91x is currently trading slightly below its industry peers’ ratio of 15.31x, which means if you buy Acadian Timber today, you’d be paying a reasonable price for it. And if you believe Acadian Timber should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, it seems like Acadian Timber’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will Acadian Timber generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 -19% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Acadian Timber. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? ADN seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk 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 ADN, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on ADN for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, 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 ADN should the price fluctuate below the industry PE ratio.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. At Simply Wall St, we found 2 warning signs for Acadian Timber and we think they deserve your attention.

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This article by Simply Wall St is general in nature. 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.
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