Is There Now An Opportunity In Advantage Solutions Inc. (NASDAQ:ADV)?

Advantage Solutions Inc. (NASDAQ:ADV), might not be a large cap stock, but it saw a decent share price growth in the teens level on the NASDAQGS 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 take a look at Advantage Solutions’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Advantage Solutions

Is Advantage Solutions Still Cheap?

According to my 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, 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 Advantage Solutions’s ratio of 9.56x is trading slightly below its industry peers’ ratio of 12.77x, which means if you buy Advantage Solutions today, you’d be paying a reasonable price for it. And if you believe Advantage Solutions should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Although, there may be an opportunity to buy in the future. This is because Advantage Solutions’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

Can we expect growth from Advantage Solutions?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Advantage Solutions, at least in the near future.

What This Means For You

Are you a shareholder? Currently, ADV appears to be trading around industry price multiples, 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 optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on ADV, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on ADV for a while, now may not be the most optimal 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 gel your views on ADV should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing Advantage Solutions at this point in time. For instance, we've identified 4 warning signs for Advantage Solutions (2 are a bit unpleasant) you should be familiar with.

If you are no longer interested in Advantage 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.