Should You Think About Buying Kingfisher plc (LON:KGF) Now?

While Kingfisher plc (LON:KGF) might not be the most widely known stock at the moment, it led the LSE gainers with a relatively large price hike in the past couple of weeks. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s examine Kingfisher’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Kingfisher

What's The Opportunity In Kingfisher?

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. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Kingfisher’s ratio of 7.97x is trading slightly below its industry peers’ ratio of 10.87x, which means if you buy Kingfisher today, you’d be paying a decent price for it. And if you believe Kingfisher should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. 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. 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 -17% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Kingfisher. This certainty tips the risk-return scale towards higher risk.

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 beneficial 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 an eye on KGF for a while, now may not be the most advantageous 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 gel your views on KGF should the price fluctuate below the industry PE ratio.

If you'd like to know more about Kingfisher as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 2 warning signs we've spotted with Kingfisher (including 1 which is concerning).

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.