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Arbuthnot Banking Group PLC (LON:ARBB), operating in the financial services industry based in United Kingdom, maintained its current share price over the past couple of month on the AIM, with a relatively tight range of £12.9 to £13.85. However, does this price actually reflect the true value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Arbuthnot Banking Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Arbuthnot Banking Group still cheap?
According to my relative valuation model, the stock is currently overvalued. 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 Arbuthnot Banking Group’s ratio of 35.26x is above its peer average of 9.08x, which suggests the stock is overvalued compared to the Banks industry. But, is there another opportunity to buy low in the future? Since Arbuthnot Banking Group’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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 kind of growth will Arbuthnot Banking Group generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Arbuthnot Banking Group’s earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? ARBB’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe ARBB should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on ARBB for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for ARBB, which means it’s worth diving deeper into other factors 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 Arbuthnot Banking Group. You can find everything you need to know about Arbuthnot Banking Group in the latest infographic research report. If you are no longer interested in Arbuthnot Banking Group, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.