Is It Time To Buy Rentokil Initial plc (LSE:RTO)?
Rentokil Initial plc (LSE:RTO), a commercial and professional services 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 £3.07 at one point, and dropping to the lows of £2.69. 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 RTO's current trading price of £2.93 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at RTO’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. Check out our latest analysis for Rentokil Initial
What's the opportunity in RTO?
According to my valuation model, the stock is currently overvalued by about 43%, trading at £2.93 compared to my intrinsic value of £2.04. This means that the buying opportunity has probably disappeared for now. Furthermore, RTO’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 true value, 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.
What does the future of RTO 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 RTO future expectations. Though in the case of RTO, 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 RTO 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 RTO 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 Rentokil Initial. You can find everything you need to know about RTO in the latest infographic research report. If you are no longer interested in Rentokil Initial, 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.
