Is Now An Opportune Moment To Examine Shoe Zone plc (LON:SHOE)?

Shoe Zone plc (LON:SHOE), 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 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? Today I will analyse the most recent data on Shoe Zone’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Shoe Zone

Is Shoe Zone Still Cheap?

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. 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 10.17x is currently trading slightly below its industry peers’ ratio of 10.44x, which means if you buy Shoe Zone today, you’d be paying a reasonable price for it. And if you believe that Shoe Zone should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. So, is there another chance to buy low in the future? Given that Shoe Zone’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 Shoe Zone?

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. Though in the case of Shoe Zone, it is expected to deliver a highly negative earnings growth in the upcoming, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What This Means For You

Are you a shareholder? Currently, SHOE 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 SHOE, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on SHOE 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. In addition to this, 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 crystallize your views on SHOE should the price fluctuate below the industry PE ratio.

If you'd like to know more about Shoe Zone as a business, it's important to be aware of any risks it's facing. Our analysis shows 2 warning signs for Shoe Zone (1 doesn't sit too well with us!) and we strongly recommend you look at them before investing.

If you are no longer interested in Shoe Zone, 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.