Should You Investigate Kingfisher plc (LON:KGF) At UK£3.30?

Kingfisher plc (LON:KGF), might not be a large cap stock, but it saw significant share price movement during recent months on the LSE, rising to highs of UK£3.71 and falling to the lows of UK£3.17. 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 Kingfisher's current trading price of UK£3.30 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Kingfisher’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 Kingfisher

What is Kingfisher worth?

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 8.22x is currently trading slightly below its industry peers’ ratio of 12.02x, which means if you buy Kingfisher today, you’d be paying a decent price for it. And if you believe that Kingfisher 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. Is there another opportunity to buy low in the future? Since Kingfisher’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.

What kind of growth will Kingfisher generate?

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. 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. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Kingfisher, at least in the near future.

What this means for you:

Are you a shareholder? Currently, KGF 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 de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on KGF, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on KGF 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 crystallize your views on KGF should the price fluctuate below the industry PE ratio.

If you want to dive deeper into Kingfisher, you'd also look into what risks it is currently facing. For example, we've found that Kingfisher has 2 warning signs (1 is concerning!) that deserve your attention before going any further with your analysis.

If you are no longer interested in Kingfisher, 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.