Is Now The Time To Look At Buying Dunelm Group plc (LON:DNLM)?

Dunelm Group plc (LON:DNLM), is not the largest company out there, but it led the LSE gainers with a relatively large price hike in the past couple of weeks. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s examine Dunelm Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Our analysis indicates that DNLM is potentially undervalued!

What Is Dunelm Group Worth?

According to my valuation model, Dunelm Group seems to be fairly priced at around 6.7% below my intrinsic value, which means if you buy Dunelm Group today, you’d be paying a reasonable price for it. And if you believe the company’s true value is £10.40, then there’s not much of an upside to gain from mispricing. Is there another opportunity to buy low in the future? Since Dunelm Group’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from Dunelm Group?

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. However, with a negative profit growth of -14% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Dunelm Group. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? DNLM seems fairly priced right now, 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 the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on DNLM for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which 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 gel your views on DNLM should the price fluctuate below its true value.

So while earnings quality is important, it's equally important to consider the risks facing Dunelm Group at this point in time. For example, we've found that Dunelm Group has 3 warning signs (1 is a bit concerning!) that deserve your attention before going any further with your analysis.

If you are no longer interested in Dunelm Group, 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.