Home Capital Group Inc. (TSE:HCG), 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$17.46 at one point, and dropping to the lows of CA$15. 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 Home Capital Group's current trading price of CA$16.41 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 Home Capital Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Home Capital Group still cheap?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 9.38% above my intrinsic value, which means if you buy Home Capital Group today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is CA$15, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because Home Capital 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 kind of growth will Home Capital Group 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. 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. However, with a relatively muted profit growth of 8.6% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Home Capital Group, at least in the short term.
What this means for you:
Are you a shareholder? It seems like the market has already priced in HCG’s future outlook, 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 the stock? 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 tabs on HCG, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook 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 Home Capital Group. You can find everything you need to know about Home Capital Group in the latest infographic research report. If you are no longer interested in Home Capital Group, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.