Is DCC plc (LON:DCC) Potentially Undervalued?

DCC plc (LON:DCC), is not the largest company out there, but it had a relatively subdued couple of weeks in terms of changes in share price, which continued to float around the range of UK£58.84 to UK£64.54. However, is this the true valuation level of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at DCC’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for DCC

Is DCC still cheap?

According to my valuation model, DCC seems to be fairly priced at around 9.1% below my intrinsic value, which means if you buy DCC today, you’d be paying a fair price for it. And if you believe that the stock is really worth £65.24, then there isn’t much room for the share price grow beyond what it’s currently trading. What's more, DCC’s share price may be more stable over time (relative to the market), as indicated by its low beta.

Can we expect growth from DCC?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 32% over the next couple of years, the future seems bright for DCC. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? DCC’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping tabs on DCC, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you want to dive deeper into DCC, you'd also look into what risks it is currently facing. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of DCC.

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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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