Should You Investigate Cavco Industries, Inc. (NASDAQ:CVCO) At US$560?

While Cavco Industries, Inc. (NASDAQ:CVCO) might not have the largest market cap around , it saw a significant share price rise of 41% in the past couple of months on the NASDAQGS. The company is now trading at yearly-high levels following the recent surge in its share price. As a well-established company, which tends to be well-covered by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Today we will analyse the most recent data on Cavco Industries’s outlook and valuation to see if the opportunity still exists.

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What Is Cavco Industries Worth?

Cavco Industries appears to be expensive according to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Cavco Industries’s ratio of 23.55x is above its peer average of 11.38x, which suggests the stock is trading at a higher price compared to the Consumer Durables industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Cavco Industries’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

View our latest analysis for Cavco Industries

Can we expect growth from Cavco Industries?

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. However, with a relatively muted profit growth of 6.6% expected over the next year, growth doesn’t seem like a key driver for a buy decision for Cavco Industries, at least in the short term.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in CVCO’s 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 CVCO 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 tabs on CVCO for some time, 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 positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Cavco Industries at this point in time. At Simply Wall St, we found 1 warning sign for Cavco Industries and we think they deserve your attention.

If you are no longer interested in Cavco Industries, 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.