Is It Time To Consider Buying Ethan Allen Interiors Inc. (NYSE:ETD)?

While Ethan Allen Interiors Inc. (NYSE:ETD) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$25.74 at one point, and dropping to the lows of US$22.49. 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 Ethan Allen Interiors' current trading price of US$24.50 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 Ethan Allen Interiors’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Ethan Allen Interiors

What is Ethan Allen Interiors worth?

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 Ethan Allen Interiors’s ratio of 8.74x is trading slightly below its industry peers’ ratio of 10.16x, which means if you buy Ethan Allen Interiors today, you’d be paying a reasonable price for it. And if you believe that Ethan Allen Interiors 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. So, is there another chance to buy low in the future? Given that Ethan Allen Interiors’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 kind of growth will Ethan Allen Interiors 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. 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. Ethan Allen Interiors' earnings growth are expected to be in the teens in the upcoming year, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? ETD’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at ETD? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on ETD, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for ETD, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you'd like to know more about Ethan Allen Interiors as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 2 warning signs for Ethan Allen Interiors and we think they deserve your attention.

If you are no longer interested in Ethan Allen Interiors, 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.