When Should You Buy Redde Northgate plc (LON:REDD)?

By
Simply Wall St
Published
March 16, 2022
LSE:REDD
Source: Shutterstock

Redde Northgate plc (LON:REDD), might not be a large cap stock, but it saw a decent share price growth in the teens level on the LSE over the last few months. 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. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Redde Northgate’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Redde Northgate

Is Redde Northgate still cheap?

According to my valuation model, Redde Northgate seems to be fairly priced at around 11% below my intrinsic value, which means if you buy Redde Northgate today, you’d be paying a reasonable price for it. And if you believe the company’s true value is £4.52, then there’s not much of an upside to gain from mispricing. Is there another opportunity to buy low in the future? Since Redde Northgate’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 Redde Northgate?

earnings-and-revenue-growth
LSE:REDD Earnings and Revenue Growth March 16th 2022

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 -8.5% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Redde Northgate. This certainty tips the risk-return scale towards higher risk.

What this means for you:

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

Are you a potential investor? If you’ve been keeping tabs on REDD for a while, now may not be the most advantageous 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 REDD should the price fluctuate below its true value.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Redde Northgate (of which 2 can't be ignored!) you should know about.

If you are no longer interested in Redde Northgate, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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