Is Now The Time To Look At Buying Diana Shipping Inc. (NYSE:DSX)?

Diana Shipping Inc. (NYSE:DSX), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. 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 Diana Shipping’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Diana Shipping

What is Diana Shipping worth?

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 4.83x is currently trading slightly above its industry peers’ ratio of 2.47x, which means if you buy Diana Shipping today, you’d be paying a relatively reasonable price for it. And if you believe that Diana Shipping should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Is there another opportunity to buy low in the future? Since Diana Shipping’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 Diana Shipping 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 a negative profit growth of -13% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for Diana Shipping. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? DSX 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 DSX, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on DSX 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. 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 crystallize your views on DSX should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing Diana Shipping at this point in time. Case in point: We've spotted 4 warning signs for Diana Shipping you should be mindful of and 2 of these are a bit concerning.

If you are no longer interested in Diana Shipping, 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.