Is Lancashire Holdings Limited (LSE:LRE) Undervalued?
Lancashire Holdings Limited (LSE:LRE), a insurance company based in United Kingdom, received a lot of attention from a substantial price movement on the LSE in the over the last few months, increasing to £7.4 at one point, and dropping to the lows of £6.11. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether LRE's current trading price of £6.53 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 LRE’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. See our latest analysis for LRE
What is LRE worth?
My valuation model shows that the stock’s value should be £5.17 but it is currently trading at £6.53 on the share market, meaning that the opportunity to buy LRE at a good price has disappeared! Another thing to keep in mind is that LRE’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.
What kind of growth will LRE generate?
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 LRE future expectations. Though in the case of LRE, it is expected to deliver a highly negative earnings growth in the next few years, 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? If you believe LRE is currently trading above its value, selling high and buying it back up again when its price falls towards its real value can be profitable. Given the risk from a negative growth outlook, this could be the right time to de-risk your portfolio. 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 LRE for a while, now may not be the best time to enter into the stock. Its price has risen beyond its true value, on top of a negative future outlook. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Should the price fall in the future, will you be well-informed enough to buy?
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Lancashire Holdings. You can find everything you need to know about LRE in the latest infographic research report. If you are no longer interested in Lancashire Holdings, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
