When Should You Buy Morguard Corporation (TSE:MRC)?

Morguard Corporation (TSE:MRC), is not the largest company out there, but it saw a decent share price growth in the teens level on the TSX over the last few months. Less-covered, small caps sees 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? Today I will analyse the most recent data on Morguard’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Morguard

What's the opportunity in Morguard?

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 Morguard’s ratio of 26.62x is trading slightly above its industry peers’ ratio of 23.11x, which means if you buy Morguard today, you’d be paying a relatively reasonable price for it. And if you believe Morguard 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. Although, there may be an opportunity to buy in the future. This is because Morguard’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.

Can we expect growth from Morguard?

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. Though in the case of Morguard, it is expected to deliver a negative revenue growth of -3.2% over the next couple of years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

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

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

If you'd like to know more about Morguard as a business, it's important to be aware of any risks it's facing. Our analysis shows 4 warning signs for Morguard (1 makes us a bit uncomfortable!) and we strongly recommend you look at them before investing.

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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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