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M.D.C. Holdings, Inc. (NYSE:MDC), which is in the consumer durables business, and is based in United States, led the NYSE gainers with a relatively large price hike in the past couple of weeks. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine M.D.C. Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
View our latest analysis for M.D.C. Holdings
What's the opportunity in M.D.C. Holdings?
The stock seems fairly valued at the moment according to my relative valuation model. 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 M.D.C. Holdings’s ratio of 9.58x is trading slightly below its industry peers’ ratio of 13.85x, which means if you buy M.D.C. Holdings today, you’d be paying a fair price for it. And if you believe that M.D.C. Holdings should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that M.D.C. Holdings’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 does the future of M.D.C. Holdings look like?
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 a negative profit growth of -4.5% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for M.D.C. Holdings. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? MDC seems fairly priced 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 MDC, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on MDC for a while, now may not be the most advantageous 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 crystalize your views on MDC should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on M.D.C. Holdings. You can find everything you need to know about M.D.C. Holdings in the latest infographic research report. If you are no longer interested in M.D.C. Holdings, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.