Is The RMR Group Inc. (NASDAQ:RMR) Potentially Undervalued?

The RMR Group Inc. (NASDAQ:RMR), is not the largest company out there, but it saw a decent share price growth in the teens level on the NASDAQCM over the last few months. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at RMR Group’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for RMR Group

Is RMR Group Still Cheap?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 1.53% above my intrinsic value, which means if you buy RMR Group today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is $24.23, then there isn’t really any room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that RMR Group’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of RMR Group look like?

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 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 RMR Group, at least in the near future.

What This Means For You

Are you a shareholder? Currently, RMR appears to be trading around its fair value, 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 the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on RMR for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, 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 RMR should the price fluctuate below its true value.

So while earnings quality is important, it's equally important to consider the risks facing RMR Group at this point in time. For example, RMR Group has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

If you are no longer interested in RMR Group, 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.