When Should You Buy Rocky Brands, Inc. (NASDAQ:RCKY)?

Rocky Brands, Inc. (NASDAQ:RCKY), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the NASDAQGS. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine Rocky Brands’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Rocky Brands

What's The Opportunity In Rocky Brands?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to 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 Rocky Brands’s ratio of 7.77x is trading slightly below its industry peers’ ratio of 11.32x, which means if you buy Rocky Brands today, you’d be paying a decent price for it. And if you believe that Rocky Brands should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Is there another opportunity to buy low in the future? Since Rocky Brands’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.

What kind of growth will Rocky Brands generate?

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 an expected decline of -7.1% in revenues over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Rocky Brands. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? RCKY seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in 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 RCKY, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on RCKY for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, 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 crystallize your views on RCKY should the price fluctuate below the industry PE ratio.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Be aware that Rocky Brands is showing 3 warning signs in our investment analysis and 1 of those is a bit concerning...

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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.