Why Graham Holdings Company (NYSE:GHC) Could Be Worth Watching
Graham Holdings Company (NYSE:GHC), is not the largest company out there, but it received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$671 at one point, and dropping to the lows of US$558. 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 Graham Holdings' current trading price of US$558 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Graham Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Check out our latest analysis for Graham Holdings
What's The Opportunity In Graham Holdings?
According to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. 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 Graham Holdings’s ratio of 40.05x is above its peer average of 26.63x, which suggests the stock is trading at a higher price compared to the Consumer Services industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Graham Holdings’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from Graham Holdings?
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. 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. Graham Holdings' revenue growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to robust cash flows, feeding into a higher share value.
What This Means For You
Are you a shareholder? It seems like the market has well and truly priced in GHC’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe GHC should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on GHC for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for GHC, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
If you want to dive deeper into Graham Holdings, you'd also look into what risks it is currently facing. For example, Graham Holdings has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.
If you are no longer interested in Graham Holdings, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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