Is Now The Time To Look At Buying Five Star Senior Living Inc. (NASDAQ:FVE)?

While Five Star Senior Living Inc. (NASDAQ:FVE) might not be the most widely known stock at the moment, it saw a decent share price growth in the teens level on the NASDAQCM over the last few months. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine Five Star Senior Living’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Five Star Senior Living

What is Five Star Senior Living worth?

Good news, investors! Five Star Senior Living is still a bargain right now according to my price multiple model, which compares 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 Five Star Senior Living’s ratio of 13.61x is below its peer average of 21.63x, which indicates the stock is trading at a lower price compared to the Healthcare industry. What’s more interesting is that, Five Star Senior Living’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to move closer to its industry peers, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will Five Star Senior Living 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. Though in the case of Five Star Senior Living, it is expected to deliver a highly negative earnings growth in the upcoming, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? Although FVE is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. Consider whether you want to increase your portfolio exposure to FVE, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on FVE for a while, but hesitant on making the leap, I recommend you research further into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

If you want to dive deeper into Five Star Senior Living, you'd also look into what risks it is currently facing. Our analysis shows 3 warning signs for Five Star Senior Living (1 makes us a bit uncomfortable!) and we strongly recommend you look at them before investing.

If you are no longer interested in Five Star Senior Living, 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. 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.
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