Why Conifex Timber Inc. (TSE:CFF) Could Be Worth Watching

Conifex Timber Inc. (TSE:CFF), 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 Conifex Timber’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Conifex Timber

Is Conifex 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. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Conifex Timber’s ratio of 2.71x is trading slightly below its industry peers’ ratio of 6.41x, which means if you buy Conifex Timber today, you’d be paying a decent price for it. And if you believe Conifex 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. Is there another opportunity to buy low in the future? Since Conifex 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.

What does the future of Conifex Timber look like?

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. 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 an expected decline of -17% in revenues over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Conifex Timber. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Currently, CFF 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 CFF, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on CFF 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. 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 crystallize your views on CFF 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. Case in point: We've spotted 3 warning signs for Conifex Timber you should be mindful of and 1 of these doesn't sit too well with us.

If you are no longer interested in Conifex Timber, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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.

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