TowneBank (NASDAQ:TOWN), operating in the financial services industry based in United States, had a relatively subdued couple of weeks in terms of changes in share price, which continued to float around the range of $29.15 to $31.85. However, is this the true valuation level of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at TOWN’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 TOWN
What's the opportunity in TOWN?
The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that TOWN’s ratio of 21.1x is trading slightly above its industry peers’ ratio of 19.6x, which means if you buy TOWN today, you’d be paying a relatively reasonable price for it. And if you believe TOWN should be trading in this range, then there isn’t really any room for the share price grow beyond what it’s currently trading. Furthermore, it seems like TOWN’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s fairly valued. This is because TOWN’s stock is less volatile than the wider market given its low beta.
Can we expect growth from TOWN?
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.Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 51.56% over the next couple of years, the future seems bright for TOWN. It looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has already priced in TOWN’s positive outlook, with shares trading around its fair value. 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 TOWN? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on TOWN, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for TOWN, 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.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on TowneBank. You can find everything you need to know about TOWN in the latest infographic research report. If you are no longer interested in TowneBank, 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.