Is Steelcase Inc. (NYSE:SCS) Potentially Undervalued?

While Steelcase Inc. (NYSE:SCS) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the NYSE, rising to highs of US$16.59 and falling to the lows of US$13.73. 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 Steelcase's current trading price of US$14.19 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Steelcase’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Steelcase

What's the opportunity in Steelcase?

According to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 63.94x is currently well-above the industry average of 34.24x, meaning that it is trading at a more expensive price relative to its peers. But, is there another opportunity to buy low in the future? Since Steelcase’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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.

What kind of growth will Steelcase generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 Steelcase. 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? SCS’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe SCS 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 SCS 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 SCS, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Steelcase, you'd also look into what risks it is currently facing. To that end, you should learn about the 5 warning signs we've spotted with Steelcase (including 1 which is a bit concerning).

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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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