SkyCity Entertainment Group Limited (NZSE:SKC), is not the largest company out there, but it received a lot of attention from a substantial price increase on the NZSE over the last few months. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine SkyCity Entertainment Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What is SkyCity Entertainment Group worth?
According to my valuation model, SkyCity Entertainment Group seems to be fairly priced at around 14% below my intrinsic value, which means if you buy SkyCity Entertainment Group today, you’d be paying a reasonable price for it. And if you believe the company’s true value is NZ$4.09, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that SkyCity Entertainment Group’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.
What does the future of SkyCity Entertainment Group look like?
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 revenues expected to grow by 70% over the next couple of years, the future seems bright for SkyCity Entertainment Group. If the level of expenses is able to be maintained, 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 already priced in SKC’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on SKC, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. You'd be interested to know, that we found 1 warning sign for SkyCity Entertainment Group and you'll want to know about it.
If you are no longer interested in SkyCity Entertainment Group, 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. 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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