At CA$18.29, Is It Time To Put Acadian Timber Corp. (TSE:ADN) On Your Watch List?

Acadian Timber Corp. (TSE:ADN), is not the largest company out there, but it saw significant share price movement during recent months on the TSX, rising to highs of CA$21.31 and falling to the lows of CA$17.53. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Acadian Timber's current trading price of CA$18.29 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Acadian Timber’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Acadian Timber

Is Acadian Timber still cheap?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 9.65x is currently trading slightly above its industry peers’ ratio of 8.61x, which means if you buy Acadian Timber today, you’d be paying a relatively sensible price for it. And if you believe Acadian Timber should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since Acadian Timber’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.

Can we expect growth from Acadian Timber?

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 an extremely negative double-digit change in profit expected next year, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Acadian Timber, at least in the near future.

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 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 ADN, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs 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.

If you'd like to know more about Acadian Timber as a business, it's important to be aware of any risks it's facing. For example, Acadian Timber has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

If you are no longer interested in Acadian Timber, 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. 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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