At US$712, Is It Time To Put Graham Holdings Company (NYSE:GHC) On Your Watch List?

Graham Holdings Company (NYSE:GHC), is not the largest company out there, but it saw a decent share price growth of 16% on the NYSE over the last few months. The recent share price gains has brought the company back closer to its yearly peak. As a US$3.3b market cap stock, it seems odd Graham Holdings is not more well-covered by analysts. However, this is not necessarily a bad thing given that there are less eyes on the stock to push it closer to fair value. Is there still an opportunity to buy? Let’s examine Graham Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Graham Holdings

What Is Graham Holdings Worth?

According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Graham Holdings’s ratio of 20.58x is trading slightly below its industry peers’ ratio of 23.17x, which means if you buy Graham Holdings today, you’d be paying a reasonable price for it. And if you believe that Graham Holdings 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. Is there another opportunity to buy low in the future? Since Graham 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 does the future of Graham 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. Graham Holdings' revenue growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? GHC’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 financial strength of the company. Have these factors changed since the last time you looked at GHC? 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 GHC, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for GHC, 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 want to dive deeper into Graham Holdings, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Graham Holdings has 1 warning sign and it would be unwise to ignore this.

If you are no longer interested in Graham 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.