When Should You Buy Bright Horizons Family Solutions Inc. (NYSE:BFAM)?

Bright Horizons Family Solutions Inc. (NYSE:BFAM), might not be a large cap stock, but it saw significant share price movement during recent months on the NYSE, rising to highs of US$98.48 and falling to the lows of US$77.81. 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 Bright Horizons Family Solutions' current trading price of US$79.01 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Bright Horizons Family Solutions’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Bright Horizons Family Solutions

What's The Opportunity In Bright Horizons Family Solutions?

Bright Horizons Family Solutions is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison 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 Bright Horizons Family Solutions’s ratio of 70.59x is above its peer average of 17.89x, which suggests the stock is trading at a higher price compared to the Consumer Services industry. But, is there another opportunity to buy low in the future? Since Bright Horizons Family Solutions’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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 does the future of Bright Horizons Family Solutions 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. 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. Bright Horizons Family Solutions' earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in BFAM’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe BFAM should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on BFAM for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for BFAM, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example, we've found that Bright Horizons Family Solutions has 4 warning signs (1 shouldn't be ignored!) that deserve your attention before going any further with your analysis.

If you are no longer interested in Bright Horizons Family Solutions, 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.