At US$6.37, Is It Time To Put Kirkland's, Inc. (NASDAQ:KIRK) On Your Watch List?

While Kirkland's, Inc. (NASDAQ:KIRK) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$15.98 at one point, and dropping to the lows of US$6.37. 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 Kirkland's' current trading price of US$6.37 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 Kirkland's’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 Kirkland's

Is Kirkland's 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 Kirkland's’s ratio of 3.68x is trading slightly below its industry peers’ ratio of 6.27x, which means if you buy Kirkland's today, you’d be paying a decent price for it. And if you believe that Kirkland's should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Is there another opportunity to buy low in the future? Since Kirkland's’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of Kirkland's 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. 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 a negative profit growth of -2.6% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Kirkland's. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? KIRK seems priced close to industry peers right now, 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 KIRK, take a look at whether its fundamentals have changed.

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

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For instance, we've identified 4 warning signs for Kirkland's (1 is potentially serious) you should be familiar with.

If you are no longer interested in Kirkland's, 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.