Should You Investigate IG Design Group plc (LON:IGR) At UK£1.18?
IG Design Group plc (LON:IGR), is not the largest company out there, but it saw a significant share price rise of over 20% in the past couple of months on the AIM. Less-covered, small caps sees 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 IG Design Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
View our latest analysis for IG Design Group
What Is IG Design Group Worth?
IG Design Group is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that IG Design Group’s ratio of 18.69x is above its peer average of 9.57x, which suggests the stock is trading at a higher price compared to the Consumer Durables industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that IG Design 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 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 IG Design Group look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 an expected decline of -6.4% in revenues over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for IG Design Group. This certainty tips the risk-return scale towards higher risk.
What This Means For You
Are you a shareholder? If you believe IGR should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. Given the risk from a negative growth outlook, this could be the right time to reduce your total portfolio risk. 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 tabs on IGR for some time, now may not be the best time to enter into the stock. The price has climbed past its industry peers, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the track record of its management. Should the price fall in the future, will you be well-informed enough to buy?
So while earnings quality is important, it's equally important to consider the risks facing IG Design Group at this point in time. To that end, you should learn about the 3 warning signs we've spotted with IG Design Group (including 1 which is a bit unpleasant).
If you are no longer interested in IG Design 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.
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