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Canfor Pulp Products Inc. (TSE:CFX), which is in the forestry business, and is based in Canada, received a lot of attention from a substantial price movement on the TSX over the last few months, increasing to CA$16.3 at one point, and dropping to the lows of CA$10.91. 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 Canfor Pulp Products’s current trading price of CA$10.91 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 Canfor Pulp Products’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Canfor Pulp Products still cheap?
According to my relative valuation model, the stock seems to be currently fairly priced. 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 5.44x is currently trading slightly below its industry peers’ ratio of 9.12x, which means if you buy Canfor Pulp Products today, you’d be paying a fair price for it. And if you believe Canfor Pulp Products should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. Is there another opportunity to buy low in the future? Since Canfor Pulp Products’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 Canfor Pulp Products 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 an expected decline of -0.9% in revenues over the next year, short term growth isn’t a driver for a buy decision for Canfor Pulp Products. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Currently, CFX appears to be trading around its fair value, 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 optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on CFX, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on CFX for a while, now may not be the most advantageous 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. 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 crystalize your views on CFX should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Canfor Pulp Products. You can find everything you need to know about Canfor Pulp Products in the latest infographic research report. If you are no longer interested in Canfor Pulp Products, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.