At $3.24, Is Fred’s Inc (NASDAQ:FRED) A Buy?
Fred’s Inc (NASDAQ:FRED), a multiline retail company based in United States, saw a significant share price rise of over 20% in the past couple of months on the NasdaqGS. As a small cap stock, hardly covered by any analysts, 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? Today I will analyse the most recent data on Fred’s’s outlook and valuation to see if the opportunity still exists. See our latest analysis for Fred’s
What’s the opportunity in Fred’s?
The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-book (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that Fred’s’s ratio of 0.57x is trading slightly below its industry peers’ ratio of 2.18x, which means if you buy Fred’s today, you’d be paying a relatively fair price for it. And if you believe Fred’s should be trading in this range, then there isn’t much 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 Fred’s’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.
Can we expect growth from Fred’s?
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. In the upcoming year, Fred’s’s earnings are expected to increase by 66.31%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? FRED’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at FRED? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping tabs on FRED, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for FRED, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Fred’s. You can find everything you need to know about Fred’s in the latest infographic research report. If you are no longer interested in Fred’s, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
