Mainstreet Equity Corp. (TSE:MEQ), is not the largest company out there, but it received a lot of attention from a substantial price movement on the TSX over the last few months, increasing to CA$153 at one point, and dropping to the lows of CA$113. 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 Mainstreet Equity's current trading price of CA$113 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 Mainstreet Equity’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in Mainstreet Equity?
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 4.34x is currently trading slightly below its industry peers’ ratio of 7.49x, which means if you buy Mainstreet Equity today, you’d be paying a reasonable price for it. And if you believe that Mainstreet Equity 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. Although, there may be an opportunity to buy in the future. This is because Mainstreet Equity’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What does the future of Mainstreet Equity 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 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 Mainstreet Equity, at least in the near future.
What this means for you:
Are you a shareholder? Currently, MEQ 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 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 MEQ, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on MEQ 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. 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 MEQ should the price fluctuate below the industry PE ratio.
If you'd like to know more about Mainstreet Equity as a business, it's important to be aware of any risks it's facing. When we did our research, we found 4 warning signs for Mainstreet Equity (2 are concerning!) that we believe deserve your full attention.
If you are no longer interested in Mainstreet Equity, 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.