Is Now The Time To Look At Buying Ethan Allen Interiors Inc. (NYSE:ETD)?

Ethan Allen Interiors Inc. (NYSE:ETD), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. While good news for shareholders, the company has traded much higher in the past year. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Ethan Allen Interiors’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Ethan Allen Interiors

Is Ethan Allen Interiors Still Cheap?

According to our valuation model, Ethan Allen Interiors seems to be fairly priced at around 18.56% above our intrinsic value, which means if you buy Ethan Allen Interiors today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is $25.84, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because Ethan Allen Interiors’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

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. However, with an extremely negative double-digit change in profit expected next year, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Ethan Allen Interiors, at least in the near future.

What This Means For You

Are you a shareholder? Currently, ETD appears to be trading around its fair value, 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 beneficial 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 ETD 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. 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 gel your views on ETD should the price fluctuate below its true value.

If you want to dive deeper into Ethan Allen Interiors, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for Ethan Allen Interiors (of which 1 makes us a bit uncomfortable!) you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com