What Does The Go-Ahead Group plc's (LON:GOG) Share Price Indicate?

While The Go-Ahead Group plc (LON:GOG) might not be the most widely known stock at the moment, it saw a significant share price rise of over 20% in the past couple of months on the LSE. As a 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 take a look at Go-Ahead Group’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Go-Ahead Group

What's the opportunity in Go-Ahead Group?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 16.81% above my intrinsic value, which means if you buy Go-Ahead Group today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is £7.03, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because Go-Ahead Group’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Go-Ahead Group 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. Though in the case of Go-Ahead Group, it is expected to deliver a highly negative revenue growth over the next few years, 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? GOG 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 an eye on GOG for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The stock appears 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 crystalize your views on GOG should the price fluctuate below its true value.

So while earnings quality is important, it's equally important to consider the risks facing Go-Ahead Group at this point in time. For instance, we've identified 2 warning signs for Go-Ahead Group (1 can't be ignored) you should be familiar with.

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This article by Simply Wall St is general in nature. 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.
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