Why Grafton Group plc (LON:GFTU) Could Be Worth Watching

Grafton Group plc (LON:GFTU), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the LSE over the last few months, increasing to UK£9.20 at one point, and dropping to the lows of UK£7.51. 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 Grafton Group's current trading price of UK£7.73 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 Grafton Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Grafton Group

What Is Grafton Group Worth?

Great news for investors – Grafton Group is still trading at a fairly cheap price. According to my valuation, the intrinsic value for the stock is £10.74, but it is currently trading at UK£7.73 on the share market, meaning that there is still an opportunity to buy now. However, given that Grafton Group’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Grafton Group?

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 a negative profit growth of -7.1% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Grafton Group. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Although GFTU is currently undervalued, the negative outlook does bring on some uncertainty, which equates to higher risk. Consider whether you want to increase your portfolio exposure to GFTU, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping tabs on GFTU for some time, but hesitant on making the leap, I recommend you research further into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

So while earnings quality is important, it's equally important to consider the risks facing Grafton Group at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Grafton Group.

If you are no longer interested in Grafton Group, 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.