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Macatawa Bank Corporation (NASDAQ:MCBC), operating in the financial services industry based in United States, saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$11.13 and falling to the lows of US$6.37. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Macatawa Bank's current trading price of US$6.86 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Macatawa Bank’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in Macatawa Bank?
The share price seems sensible at the moment according to my price multiple model, where I compare 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 Macatawa Bank’s ratio of 7.31x is trading slightly below its industry peers’ ratio of 8.58x, which means if you buy Macatawa Bank today, you’d be paying a reasonable price for it. And if you believe that Macatawa Bank should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, it seems like Macatawa Bank’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.
What kind of growth will Macatawa Bank generate?
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. Though in the case of Macatawa Bank, it is expected to deliver a negative earnings growth of -14%, 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? Currently, MCBC appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on MCBC, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on MCBC for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on MCBC should the price fluctuate below the industry PE ratio.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Macatawa Bank. You can find everything you need to know about Macatawa Bank in the latest infographic research report. If you are no longer interested in Macatawa Bank, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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