At US$137, Is Ferguson plc (NYSE:FERG) Worth Looking At Closely?

Today we're going to take a look at the well-established Ferguson plc (NYSE:FERG). The company's stock received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$150 at one point, and dropping to the lows of US$125. 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 Ferguson's current trading price of US$137 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Ferguson’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Ferguson

Is Ferguson Still Cheap?

According to my valuation model, Ferguson seems to be fairly priced at around 2.6% below my intrinsic value, which means if you buy Ferguson today, you’d be paying a fair price for it. And if you believe that the stock is really worth $140.61, then there isn’t much room for the share price grow beyond what it’s currently trading. Is there another opportunity to buy low in the future? Since Ferguson’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 Ferguson?

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 -0.6% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Ferguson. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? FERG 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 an eye on FERG for a while, now may not be the most optimal 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. 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 gel your views on FERG should the price fluctuate below its true value.

So while earnings quality is important, it's equally important to consider the risks facing Ferguson at this point in time. Every company has risks, and we've spotted 2 warning signs for Ferguson you should know about.

If you are no longer interested in Ferguson, 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.