At US$26.72, Is The RMR Group Inc. (NASDAQ:RMR) Worth Looking At Closely?

The RMR Group Inc. (NASDAQ:RMR), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the NASDAQCM over the last few months, increasing to US$31.61 at one point, and dropping to the lows of US$26.72. 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 RMR Group's current trading price of US$26.72 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at RMR Group’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 RMR Group

What's the opportunity in RMR Group?

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. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 12.26x is currently trading slightly above its industry peers’ ratio of 8.65x, which means if you buy RMR Group today, you’d be paying a relatively reasonable price for it. And if you believe that RMR Group should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Although, there may be an opportunity to buy in the future. This is because RMR Group’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.

What does the future of RMR Group 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. However, with a relatively muted profit growth of 5.3% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for RMR Group, at least in the short term.

What this means for you:

Are you a shareholder? It seems like the market has already priced in RMR’s growth outlook, 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 RMR? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on RMR, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing RMR Group at this point in time. Case in point: We've spotted 1 warning sign for RMR Group you should be aware of.

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.