Should You Investigate Destination XL Group, Inc. (NASDAQ:DXLG) At US$5.00?
Destination XL Group, Inc. (NASDAQ:DXLG), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the NASDAQGM over the last few months. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine Destination XL Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
View our latest analysis for Destination XL Group
What is Destination XL Group worth?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 5.67x is currently trading slightly below its industry peers’ ratio of 8.02x, which means if you buy Destination XL Group today, you’d be paying a reasonable price for it. And if you believe Destination XL Group should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that Destination XL 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.
Can we expect growth from Destination XL Group?
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. Though in the case of Destination XL Group, it is expected to deliver a negative earnings growth of -7.1%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? Currently, DXLG appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on DXLG, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on DXLG for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on DXLG should the price fluctuate below the industry PE ratio.
If you'd like to know more about Destination XL Group as a business, it's important to be aware of any risks it's facing. For example, Destination XL Group has 2 warning signs (and 1 which is significant) we think you should know about.
If you are no longer interested in Destination XL Group, 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.
