Distil plc (AIM:DIS), a food, beverage and tobacco company based in United Kingdom, saw a significant share price rise of over 20% in the past couple of months on the AIM. 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? Let’s examine DIS’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. View our latest analysis for Distil
What is DIS worth?
DIS is currently overpriced based on my relative valuation model. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 1775x is currently well-above the industry average of 25.8x, meaning that it is trading at a more expensive price relative to its peers. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since DIS’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 DIS moves relative to the rest of the market.
What does the future of DIS look like?
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.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. With revenues expected to grow by 82.62% over the next couple of years, the future seems bright for DIS. If the level of expenses is able to be maintained, it looks like higher cash flows 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 DIS’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe DIS 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 an eye on DIS for a while, 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 DIS, 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 Distil. You can find everything you need to know about DIS in the latest infographic research report. If you are no longer interested in Distil, 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.