Is Churchill Downs Incorporated (NASDAQ:CHDN) Potentially Undervalued?
Churchill Downs Incorporated (NASDAQ:CHDN), might not be a large cap stock, but it saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$244 and falling to the lows of US$185. 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 Churchill Downs' current trading price of US$185 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Churchill Downs’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 Churchill Downs
Is Churchill Downs still cheap?
Churchill Downs appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. 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 Churchill Downs’s ratio of 27.12x is above its peer average of 17.65x, which suggests the stock is trading at a higher price compared to the Hospitality industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since Churchill Downs’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 Churchill Downs generate?
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. With profit expected to grow by a double-digit 15% in the upcoming year, the short-term outlook is positive for Churchill Downs. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in CHDN’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe CHDN should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio 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 CHDN 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 optimistic prospect is encouraging for CHDN, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
If you want to dive deeper into Churchill Downs, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for Churchill Downs you should be aware of.
If you are no longer interested in Churchill Downs, 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.
