Should You Investigate Zillow Group, Inc. (NASDAQ:ZG) At US$46.15?

By
Simply Wall St
Published
April 11, 2022
NasdaqGS:ZG
Source: Shutterstock

Zillow Group, Inc. (NASDAQ:ZG) received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$64.88 at one point, and dropping to the lows of US$45.01. 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 Zillow Group's current trading price of US$46.15 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Zillow Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Zillow Group

Is Zillow Group still cheap?

According to my valuation model, Zillow Group seems to be fairly priced at around 6.4% below my intrinsic value, which means if you buy Zillow Group today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth $49.32, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Zillow 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.

Can we expect growth from Zillow Group?

earnings-and-revenue-growth
NasdaqGS:ZG Earnings and Revenue Growth April 11th 2022

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. Though in the case of Zillow Group, it is expected to deliver a highly negative revenue growth over the next few years, 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? ZG seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in 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 an eye on ZG for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which 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 ZG should the price fluctuate below its true value.

So while earnings quality is important, it's equally important to consider the risks facing Zillow Group at this point in time. Every company has risks, and we've spotted 3 warning signs for Zillow Group you should know about.

If you are no longer interested in Zillow 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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