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Crown Crafts, Inc. (NASDAQ:CRWS), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the NASDAQCM 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? Today I will analyse the most recent data on Crown Crafts’s outlook and valuation to see if the opportunity still exists.
Is Crown Crafts still cheap?
Good news, investors! Crown Crafts is still a bargain right now according to my price multiple model, which compares 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 Crown Crafts’s ratio of 9.77x is below its peer average of 25.5x, which indicates the stock is trading at a lower price compared to the Luxury industry. Crown Crafts’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
Can we expect growth from Crown Crafts?
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. However, with a negative profit growth of -4.1% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Crown Crafts. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Although CRWS is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. I recommend you think about whether you want to increase your portfolio exposure to CRWS, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you’ve been keeping an eye on CRWS for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
If you want to dive deeper into Crown Crafts, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 3 warning signs for Crown Crafts (of which 1 is a bit concerning!) you should know about.
If you are no longer interested in Crown Crafts, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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. 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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