Is There Now An Opportunity In Dignity plc (LON:DTY)?

Dignity plc (LON:DTY), is not the largest company out there, but it received a lot of attention from a substantial price increase on the LSE over the last few months. 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 examine Dignity’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Dignity

What is Dignity worth?

Dignity appears to be overvalued by 33% at the moment, based on my discounted cash flow valuation. The stock is currently priced at UK£6.55 on the market compared to my intrinsic value of £4.94. Not the best news for investors looking to buy! But, is there another opportunity to buy low in the future? Given that Dignity’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.

What does the future of Dignity look like?

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. Though in the case of Dignity, it is expected to deliver a negative revenue growth of -10% over the next couple of years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? If you believe DTY is currently trading above its value, selling high and buying it back up again when its price falls towards its real value can be profitable. Given the risk from a negative growth outlook, this could be the right time to de-risk your portfolio. 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 tabs on DTY for some time, now may not be the best time to enter into the stock. Price climbed passed its true value, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Should the price fall in the future, will you be well-informed enough to buy?

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. While conducting our analysis, we found that Dignity has 2 warning signs and it would be unwise to ignore these.

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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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