Why Travis Perkins plc (LON:TPK) Could Be Worth Watching
Travis Perkins plc (LON:TPK), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the LSE over the last few months, increasing to UK£9.35 at one point, and dropping to the lows of UK£7.82. 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 Travis Perkins' current trading price of UK£8.30 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 Travis Perkins’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 Travis Perkins
What's The Opportunity In Travis Perkins?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 20% below my intrinsic value, which means if you buy Travis Perkins today, you’d be paying a fair price for it. And if you believe the company’s true value is £10.38, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that Travis Perkins’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Travis Perkins look like?
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. 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. Travis Perkins' earnings over the next few years are expected to increase by 49%, 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? It seems like the market has already priced in TPK’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 the stock? 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 TPK, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining 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 Travis Perkins at this point in time. You'd be interested to know, that we found 2 warning signs for Travis Perkins and you'll want to know about them.
If you are no longer interested in Travis Perkins, 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.
