Is It Too Late To Consider Buying Domtar Corporation (NYSE:UFS)?
Domtar Corporation (NYSE:UFS), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the NYSE over the last few months. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Today I will analyse the most recent data on Domtar’s outlook and valuation to see if the opportunity still exists.
Check out our latest analysis for Domtar
Is Domtar still cheap?
According to my valuation model, Domtar seems to be fairly priced at around 3.4% below my intrinsic value, which means if you buy Domtar today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth $37.75, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that Domtar’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.
Can we expect growth from Domtar?
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 relatively muted revenue growth of 8.9% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Domtar, at least in the short term.
What this means for you:
Are you a shareholder? UFS’s future growth appears to have been factored into the current share price, 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 the stock? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping an eye on UFS, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. When we did our research, we found 2 warning signs for Domtar (1 is significant!) that we believe deserve your full attention.
If you are no longer interested in Domtar, 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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