Stock Analysis

Should You Think About Buying Restaurant Brands New Zealand Limited (NZSE:RBD) Now?

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NZSE:RBD
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Restaurant Brands New Zealand Limited (NZSE:RBD), might not be a large cap stock, but it saw a decent share price growth in the teens level on the NZSE over the last few months. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Restaurant Brands New Zealand’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Restaurant Brands New Zealand

What's the opportunity in Restaurant Brands New Zealand?

Restaurant Brands New Zealand appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. 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 Restaurant Brands New Zealand’s ratio of 56.05x is above its peer average of 48.68x, which suggests the stock is trading at a higher price compared to the Hospitality industry. Another thing to keep in mind is that Restaurant Brands New Zealand’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.

Can we expect growth from Restaurant Brands New Zealand?

earnings-and-revenue-growth
NZSE:RBD Earnings and Revenue Growth June 6th 2021

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. With profit expected to more than double over the next couple of years, the future seems bright for Restaurant Brands New Zealand. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in RBD’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe RBD should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on RBD for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for RBD, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Our analysis shows 3 warning signs for Restaurant Brands New Zealand (1 is a bit concerning!) and we strongly recommend you look at them before investing.

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