Is Marlowe plc (LON:MRL) Potentially Undervalued?

Marlowe plc (LON:MRL), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the AIM. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine Marlowe’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Marlowe

What is Marlowe worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 10.46% above my intrinsic value, which means if you buy Marlowe today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is £7.15, there’s only an insignificant downside when the price falls to its real value. So, is there another chance to buy low in the future? Given that Marlowe’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Marlowe 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. Marlowe's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has already priced in MRL’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 conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping tabs on MRL, now may not be the most optimal 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 diving deeper into 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 Marlowe at this point in time. Be aware that Marlowe is showing 5 warning signs in our investment analysis and 1 of those is a bit unpleasant...

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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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