Is It Time To Consider Buying Kier Group plc (LON:KIE)?

Kier Group plc (LON:KIE), is not the largest company out there, but it saw a significant share price rise of 27% in the past couple of months on the LSE. The company is now trading at yearly-high levels following the recent surge in its share price. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Kier Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Kier Group

Is Kier Group Still Cheap?

The stock seems fairly valued at the moment according to our valuation model. It’s trading around 16% below our intrinsic value, which means if you buy Kier Group today, you’d be paying a fair price for it. And if you believe the company’s true value is £1.48, then there’s not much of an upside to gain from mispricing. Furthermore, Kier Group’s low beta implies that the stock is less volatile than the wider market.

What kind of growth will Kier Group 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. 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 82% over the next couple of years, the future seems bright for Kier Group. 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? It seems like the market has already priced in KIE’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping an eye on KIE, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Kier Group at this point in time. In terms of investment risks, we've identified 1 warning sign with Kier Group, and understanding this should be part of your investment process.

If you are no longer interested in Kier 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.