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Why Cogeco Inc. (TSE:CGO) Could Be Worth Watching

Simply Wall St

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Cogeco Inc. (TSE:CGO), which is in the media business, and is based in Canada, received a lot of attention from a substantial price movement on the TSX over the last few months, increasing to CA$86.29 at one point, and dropping to the lows of CA$77.04. 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 Cogeco's current trading price of CA$82.59 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 Cogeco’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Cogeco

What's the opportunity in Cogeco?

According to my relative valuation model, the stock seems to be currently fairly priced. 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 Cogeco’s ratio of 14.62x is trading slightly below its industry peers’ ratio of 17.31x, which means if you buy Cogeco today, you’d be paying a fair price for it. And if you believe Cogeco should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. Furthermore, Cogeco’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

What kind of growth will Cogeco generate?

TSX:CGO Past and Future Earnings, June 27th 2019

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. In the upcoming year, Cogeco’s earnings are expected to increase by 41%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? CGO’s optimistic 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 financial strength of the company. Have these factors changed since the last time you looked at CGO? 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 tabs on CGO, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for CGO, 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 Cogeco. You can find everything you need to know about Cogeco in the latest infographic research report. If you are no longer interested in Cogeco, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Thank you for reading.