Extendicare Inc. (TSE:EXE), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the TSX over the last few months, increasing to CA$7.65 at one point, and dropping to the lows of CA$6.79. 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 Extendicare's current trading price of CA$7.02 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 Extendicare’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's The Opportunity In Extendicare?
Extendicare appears to be overvalued by 29% at the moment, based on my discounted cash flow valuation. The stock is currently priced at CA$7.02 on the market compared to my intrinsic value of CA$5.46. This means that the opportunity to buy Extendicare at a good price has disappeared! If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Extendicare’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Extendicare look like?
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. Though in the case of Extendicare, it is expected to deliver a relatively unexciting top-line growth of 0.8% in the next few years, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.
What This Means For You
Are you a shareholder? It seems like the market has well and truly priced in EXE’s future 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 EXE 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 EXE for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, Extendicare has 5 warning signs (and 2 which can't be ignored) we think you should know about.
If you are no longer interested in Extendicare, 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.
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