Is Now The Time To Look At Buying FirstGroup plc (LON:FGP)?

FirstGroup plc (LON:FGP), is not the largest company out there, but it received a lot of attention from a substantial price movement on the LSE over the last few months, increasing to UK£2.32 at one point, and dropping to the lows of UK£2.01. 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 FirstGroup's current trading price of UK£2.01 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at FirstGroup’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

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What Is FirstGroup Worth?

The stock seems fairly valued at the moment according to our valuation model. It’s trading around 18.44% above our intrinsic value, which means if you buy FirstGroup today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is £1.70, there’s only an insignificant downside when the price falls to its real value. So, is there another chance to buy low in the future? Given that FirstGroup’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.

View our latest analysis for FirstGroup

What kind of growth will FirstGroup generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Though in the case of FirstGroup, it is expected to deliver a negative earnings growth of -9.9%, 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, FGP appears to be trading around its fair value, 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 FGP 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. 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 crystalize your views on FGP should the price fluctuate below its true value.

So while earnings quality is important, it's equally important to consider the risks facing FirstGroup at this point in time. Be aware that FirstGroup is showing 2 warning signs in our investment analysis and 1 of those is potentially serious...

If you are no longer interested in FirstGroup, 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.