Is Now The Time To Look At Buying Tricon Residential Inc. (TSE:TCN)?

While Tricon Residential Inc. (TSE:TCN) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the TSX over the last few months, increasing to CA$12.46 at one point, and dropping to the lows of CA$10.58. 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 Tricon Residential's current trading price of CA$11.54 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Tricon Residential’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Tricon Residential

What Is Tricon Residential Worth?

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. 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 Tricon Residential’s ratio of 7.94x is trading slightly below its industry peers’ ratio of 8.91x, which means if you buy Tricon Residential today, you’d be paying a decent price for it. And if you believe that Tricon Residential 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. So, is there another chance to buy low in the future? Given that Tricon Residential’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Tricon Residential generate?

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 extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Tricon Residential, at least in the near future.

What This Means For You

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

Are you a potential investor? If you’ve been keeping tabs on TCN 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 TCN should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing Tricon Residential at this point in time. Be aware that Tricon Residential is showing 5 warning signs in our investment analysis and 2 of those don't sit too well with us...

If you are no longer interested in Tricon Residential, 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.