DFS Furniture plc (LON:DFS), is not the largest company out there, but it saw significant share price movement during recent months on the LSE, rising to highs of UK£3.00 and falling to the lows of UK£2.63. 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 DFS Furniture's current trading price of UK£2.63 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 DFS Furniture’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in DFS Furniture?
DFS Furniture appears to be overvalued by 39% at the moment, based on my discounted cash flow valuation. The stock is currently priced at UK£2.63 on the market compared to my intrinsic value of £1.89. Not the best news for investors looking to buy! But, is there another opportunity to buy low in the future? Since DFS Furniture’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What does the future of DFS Furniture look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. In DFS Furniture's case, its revenues over the next few years are expected to grow by 36%, indicating a highly optimistic future ahead. If expense does not increase by the same rate, or higher, this top line growth 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 well and truly priced in DFS’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe DFS should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on DFS for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for DFS, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. You'd be interested to know, that we found 1 warning sign for DFS Furniture and you'll want to know about it.
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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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