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Is Equitable Group Inc. (TSE:EQB) Potentially Undervalued?

Simply Wall St

Equitable Group Inc. (TSE:EQB), operating in the financial services industry based in Canada, received a lot of attention from a substantial price movement on the TSX over the last few months, increasing to CA$119 at one point, and dropping to the lows of CA$102. 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 Equitable Group's current trading price of CA$109 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Equitable Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Equitable Group

Is Equitable Group still cheap?

According to my relative valuation model, the stock seems to be currently fairly priced. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 9.77x is currently trading slightly below its industry peers’ ratio of 12.45x, which means if you buy Equitable Group today, you’d be paying a fair price for it. And if you believe Equitable Group should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. Although, there may be an opportunity to buy in the future. This is because Equitable Group’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of Equitable Group look like?

TSX:EQB Past and Future Earnings, January 2nd 2020

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 33% over the next couple of years, the future seems bright for Equitable Group. 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? EQB’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 financial strength of the company. Have these factors changed since the last time you looked at EQB? 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 EQB, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for EQB, 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 Equitable Group. You can find everything you need to know about Equitable Group in the latest infographic research report. If you are no longer interested in Equitable Group, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

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.

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. Thank you for reading.