While Dolby Laboratories, Inc. (NYSE:DLB) might not be the most widely known stock at the moment, it saw a decent share price growth in the teens level on the NYSE over the last few months. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s take a look at Dolby Laboratories’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What's the opportunity in Dolby Laboratories?
Dolby Laboratories appears to be overvalued by 33% at the moment, based on my discounted cash flow valuation. The stock is currently priced at US$96.09 on the market compared to my intrinsic value of $72.45. This means that the buying opportunity has probably disappeared for now. Furthermore, Dolby Laboratories’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.
Can we expect growth from Dolby Laboratories?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. However, with a negative profit growth of -4.2% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Dolby Laboratories. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? If you believe DLB should trade below its current price, 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 DLB 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 track record of its management. Should the price fall in the future, will you be well-informed enough to buy?
If you'd like to know more about Dolby Laboratories as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Dolby Laboratories has 1 warning sign and it would be unwise to ignore this.
If you are no longer interested in Dolby Laboratories, 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.