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

While Dignity plc (LON:DTY) might not be the most widely known stock at the moment, 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 take a look at Dignity’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Dignity

What is Dignity worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 7.81% above my intrinsic value, which means if you buy Dignity today, you’d be paying a relatively reasonable 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. Is there another opportunity to buy low in the future? Since Dignity’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. 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.

Can we expect growth from Dignity?

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. Though in the case of Dignity, it is expected to deliver a negative revenue growth of -14% 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? DTY seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in 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 the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on DTY for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which 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 DTY should the price fluctuate below its true value.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. 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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