While Shoe Zone plc (LON:SHOE) might not be the most widely known stock at the moment, it saw a decent share price growth in the teens level on the AIM over the last few months. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Shoe Zone’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What's The Opportunity In Shoe Zone?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 1.7% below my intrinsic value, which means if you buy Shoe Zone today, you’d be paying a fair price for it. And if you believe the company’s true value is £2.39, then there isn’t much room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that Shoe Zone’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.
What does the future of Shoe Zone look like?
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 the company's future expectations. However, with a negative profit growth of -14% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for Shoe Zone. This certainty tips the risk-return scale towards higher risk.
What This Means For You
Are you a shareholder? Currently, SHOE appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in 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 the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on SHOE for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which 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 SHOE should the price fluctuate below its true value.
So while earnings quality is important, it's equally important to consider the risks facing Shoe Zone at this point in time. For example, Shoe Zone has 2 warning signs (and 1 which can't be ignored) we think you should know about.
If you are no longer interested in Shoe Zone, 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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