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Restaurant Brands New Zealand Limited (NZSE:RBD), might not be a large cap stock, but it saw significant share price movement during recent months on the NZSE, rising to highs of NZ$14.80 and falling to the lows of NZ$11.50. 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 Restaurant Brands New Zealand's current trading price of NZ$11.73 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 Restaurant Brands New Zealand’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 Restaurant Brands New Zealand?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio 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 Restaurant Brands New Zealand’s ratio of 28.21x is trading slightly above its industry peers’ ratio of 24.65x, which means if you buy Restaurant Brands New Zealand today, you’d be paying a relatively reasonable price for it. And if you believe Restaurant Brands New Zealand should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. In addition to this, it seems like Restaurant Brands New Zealand’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.
What does the future of Restaurant Brands New Zealand look like?
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. Restaurant Brands New Zealand's earnings over the next few years are expected to increase by 36%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has already priced in RBD’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at RBD? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?
Are you a potential investor? If you’ve been keeping tabs on RBD, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for RBD, 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.
If you want to dive deeper into Restaurant Brands New Zealand, you'd also look into what risks it is currently facing. For instance, we've identified 3 warning signs for Restaurant Brands New Zealand (1 is a bit concerning) you should be familiar with.
If you are no longer interested in Restaurant Brands New Zealand, 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.