Stock Analysis

When Should You Buy Savills plc (LON:SVS)?

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LSE:SVS
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Savills plc (LON:SVS), might not be a large cap stock, but it saw a decent share price growth in the teens level on the LSE over the last few months. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s examine Savills’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Savills

What's the opportunity in Savills?

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 10.36x is currently trading slightly above its industry peers’ ratio of 9.12x, which means if you buy Savills today, you’d be paying a relatively sensible price for it. And if you believe that Savills should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Although, there may be an opportunity to buy in the future. This is because Savills’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.

Can we expect growth from Savills?

earnings-and-revenue-growth
LSE:SVS Earnings and Revenue Growth July 19th 2022

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. However, with a negative profit growth of -11% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Savills. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Currently, SVS appears to be trading around industry price multiples, 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 SVS, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on SVS for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, 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 SVS should the price fluctuate below the industry PE ratio.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've found that Savills has 3 warning signs (1 is a bit unpleasant!) that deserve your attention before going any further with your analysis.

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