Should You Think About Buying Watkin Jones Plc (LON:WJG) Now?

While Watkin Jones Plc (LON:WJG) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the AIM over the last few months, increasing to UK£2.66 at one point, and dropping to the lows of UK£2.15. 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 Watkin Jones' current trading price of UK£2.25 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 Watkin Jones’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Watkin Jones

What's the opportunity in Watkin Jones?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Watkin Jones’s ratio of 13.59x is trading slightly above its industry peers’ ratio of 9.95x, which means if you buy Watkin Jones today, you’d be paying a relatively sensible price for it. And if you believe that Watkin Jones should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. So, is there another chance to buy low in the future? Given that Watkin Jones’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Watkin Jones?

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. With profit expected to grow by 67% over the next couple of years, the future seems bright for Watkin Jones. 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? WJG’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at WJG? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on WJG, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for WJG, 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.

If you want to dive deeper into Watkin Jones, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for Watkin Jones and you'll want to know about it.

If you are no longer interested in Watkin Jones, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.