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When Should You Buy Home Capital Group Inc. (TSE:HCG)?

Simply Wall St

Home Capital Group Inc. (TSE:HCG), operating in the financial services industry based in Canada, saw a double-digit share price rise of over 10% in the past couple of months on the TSX. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine Home Capital Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Home Capital Group

What's the opportunity in Home Capital Group?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 14% below my intrinsic value, which means if you buy Home Capital Group today, you’d be paying a fair price for it. And if you believe that the stock is really worth CA$32.12, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that Home Capital Group’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.

What does the future of Home Capital Group look like?

TSX:HCG Past and Future Earnings, November 8th 2019

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. Home Capital Group’s earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has already priced in HCG’s positive outlook, 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 the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping an eye on HCG, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining 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 Home Capital Group. You can find everything you need to know about Home Capital Group in the latest infographic research report. If you are no longer interested in Home Capital 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 editorial-team@simplywallst.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.