When Should You Buy Michelmersh Brick Holdings plc (LON:MBH)?

Michelmersh Brick Holdings plc (LON:MBH), 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. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at Michelmersh Brick Holdings’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Michelmersh Brick Holdings

What's the opportunity in Michelmersh Brick Holdings?

According to my valuation model, Michelmersh Brick Holdings seems to be fairly priced at around 1.89% above my intrinsic value, which means if you buy Michelmersh Brick Holdings today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is £1.30, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because Michelmersh Brick Holdings’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Michelmersh Brick Holdings 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. 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. With revenues expected to grow by a double-digit 15% over the next couple of years, the outlook is positive for Michelmersh Brick Holdings. If the level of expenses is able to be maintained, 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 already priced in MBH’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 track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping tabs on MBH, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 2 warning signs with Michelmersh Brick Holdings, and understanding these should be part of your investment process.

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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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