What Does CLS Holdings plc's (LON:CLI) Share Price Indicate?

CLS Holdings plc (LON:CLI), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the LSE. 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? Today I will analyse the most recent data on CLS Holdings’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for CLS Holdings

What's the opportunity in CLS Holdings?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 14.38x is currently trading slightly above its industry peers’ ratio of 13.61x, which means if you buy CLS Holdings today, you’d be paying a relatively reasonable price for it. And if you believe that CLS Holdings should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. In addition to this, it seems like CLS Holdings’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from CLS Holdings?

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 grow by 38% over the next couple of years, the future seems bright for CLS Holdings. 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? CLI’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 CLI? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on CLI, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for CLI, which means it’s worth diving deeper into 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. Case in point: We've spotted 4 warning signs for CLS Holdings you should be mindful of and 1 of these shouldn't be ignored.

If you are no longer interested in CLS Holdings, 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.