At US$11.17, Is The Pennant Group, Inc. (NASDAQ:PNTG) Worth Looking At Closely?
While The Pennant Group, Inc. (NASDAQ:PNTG) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$12.69 at one point, and dropping to the lows of US$10.89. 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 Pennant Group's current trading price of US$11.17 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 Pennant Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for Pennant Group
What Is Pennant Group Worth?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 25.74x is currently trading in-line with its industry peers’ ratio, which means if you buy Pennant Group today, you’d be paying a relatively reasonable price for it. Although, there may be an opportunity to buy in the future. This is because Pennant Group’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What does the future of Pennant Group look like?
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. With profit expected to grow by 86% over the next couple of years, the future seems bright for Pennant Group. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What This Means For You
Are you a shareholder? PNTG’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at PNTG? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?
Are you a potential investor? If you’ve been keeping an eye on PNTG, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for PNTG, 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.
So while earnings quality is important, it's equally important to consider the risks facing Pennant Group at this point in time. For example - Pennant Group has 1 warning sign we think you should be aware of.
If you are no longer interested in Pennant Group, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
