Is Now An Opportune Moment To Examine M.D.C. Holdings, Inc. (NYSE:MDC)?

While M.D.C. Holdings, Inc. (NYSE:MDC) might not be the most widely known stock at the moment, it led the NYSE gainers with a relatively large price hike in the past couple of weeks. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s examine M.D.C. Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for M.D.C. Holdings

What Is M.D.C. Holdings 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 M.D.C. Holdings’s ratio of 9.17x is trading slightly above its industry peers’ ratio of 8.91x, which means if you buy M.D.C. Holdings today, you’d be paying a relatively sensible price for it. And if you believe that M.D.C. Holdings should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Is there another opportunity to buy low in the future? Since M.D.C. Holdings’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 M.D.C. Holdings generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 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 M.D.C. Holdings, at least in the near future.

What This Means For You

Are you a shareholder? MDC 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 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 MDC, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on MDC 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 MDC should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing M.D.C. Holdings at this point in time. To help with this, we've discovered 5 warning signs (1 is a bit concerning!) that you ought to be aware of before buying any shares in M.D.C. Holdings.

If you are no longer interested in M.D.C. Holdings, 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.