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Aveo Group ( ASX:AOG ), which is in the real estate business, and is based in Australia, received a lot of attention from a substantial price movement on the ASX over the last few months, increasing to A$2.16 at one point, and dropping to the lows of A$1.86. 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 Aveo Group's current trading price of A$1.97 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 Aveo Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What is Aveo Group worth?
The stock seems fairly valued at the moment according to my relative valuation model. 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 6.69x is currently trading slightly below its industry peers’ ratio of 11.4x, which means if you buy Aveo Group today, you’d be paying a reasonable price for it. And if you believe that Aveo Group should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. In addition to this, it seems like Aveo Group’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.
Can we expect growth from Aveo Group?
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. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Aveo Group, at least in the near future.
What this means for you:
Are you a shareholder? Currently, AOG appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on AOG, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on AOG for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on AOG should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Aveo Group. You can find everything you need to know about Aveo Group in the latest infographic research report . If you are no longer interested in Aveo Group, 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 firstname.lastname@example.org . 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.