Is There Now An Opportunity In Hotel Chocolat Group plc (LON:HOTC)?

While Hotel Chocolat Group plc (LON:HOTC) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the AIM, rising to highs of UK£4.82 and falling to the lows of UK£3.55. 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 Hotel Chocolat Group's current trading price of UK£3.55 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 Hotel Chocolat Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Hotel Chocolat Group

Is Hotel Chocolat Group still cheap?

Hotel Chocolat Group is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison to the industry average. 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 38.03x is currently well-above the industry average of 14.15x, meaning that it is trading at a more expensive price relative to its peers. But, is there another opportunity to buy low in the future? Since Hotel Chocolat Group’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.

Can we expect growth from Hotel Chocolat Group?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. With profit expected to more than double over the next couple of years, the future seems bright for Hotel Chocolat Group. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in HOTC’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe HOTC should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio 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 tabs on HOTC for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for HOTC, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Be aware that Hotel Chocolat Group is showing 3 warning signs in our investment analysis and 1 of those shouldn't be ignored...

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.