Carolina Financial Corporation (NASDAQ:CARO), operating in the financial services industry based in United States, saw a double-digit share price rise of over 10% in the past couple of months on the NasdaqCM. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine CARO’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. View our latest analysis for Carolina Financial
What’s the opportunity in CARO?
According to my relative valuation model, CARO seems to be currently fairly priced. 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 CARO’s ratio of 19.4x is trading slightly above its industry peers’ ratio of 18.6x, which means if you buy CARO today, you’d be paying a relatively fair price for it. And if you believe CARO 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 CARO’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 CARO’s stock is less volatile than the wider market given its low beta.
What does the future of CARO 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. CARO’s earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has already priced in CARO’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 CARO? 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 CARO, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for CARO, 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 Carolina Financial. You can find everything you need to know about CARO in the latest infographic research report. If you are no longer interested in Carolina Financial, 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.