While Porvair plc (LON:PRV) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% in the past couple of months on the LSE. 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? Let’s take a look at Porvair’s outlook and value based on the most recent financial data to see if the opportunity still exists.
Check out our latest analysis for Porvair
Is Porvair still cheap?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 21.66x is currently trading slightly below its industry peers’ ratio of 26.66x, which means if you buy Porvair today, you’d be paying a decent price for it. And if you believe Porvair should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, it seems like Porvair’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.
What kind of growth will Porvair 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. 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 -5.2% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Porvair. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Currently, PRV 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 beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on PRV, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on PRV 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 gel your views on PRV should the price fluctuate below the industry PE ratio.
Since timing is quite important when it comes to individual stock picking, it's worth taking a look at what those latest analysts forecasts are. So feel free to check out our free graph representing analyst forecasts.
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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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About LSE:PRV
Porvair
Engages in the filtration, laboratory, and environmental technology business.
Excellent balance sheet with limited growth.
