Should You Think About Buying Richelieu Hardware Ltd. (TSE:RCH) Now?

Richelieu Hardware Ltd. (TSE:RCH), might not be a large cap stock, but it saw a decent share price growth in the teens level on the TSX over the last few months. 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? Today I will analyse the most recent data on Richelieu Hardware’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Richelieu Hardware

Is Richelieu Hardware Still Cheap?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 8.9% below my intrinsic value, which means if you buy Richelieu Hardware today, you’d be paying a fair price for it. And if you believe that the stock is really worth CA$48.13, then there’s not much of an upside to gain from mispricing. Is there another opportunity to buy low in the future? Since Richelieu Hardware’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will Richelieu Hardware generate?

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 a negative profit growth of -20% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for Richelieu Hardware. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Currently, RCH 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 the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on RCH for a while, now may not be the most advantageous 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 gel your views on RCH should the price fluctuate below its true value.

If you'd like to know more about Richelieu Hardware as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 3 warning signs for Richelieu Hardware you should be mindful of and 2 of them are a bit unpleasant.

If you are no longer interested in Richelieu Hardware, 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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