Is it too late to consider buying Headlam Group plc (LON:HEAD)?

Headlam Group plc (LON:HEAD) isn’t the biggest company on the market, but its share price has seen significant moves in recent months on the LSE, reaching highs of UK£1.86 and falling to lows of UK£1.44. Certain stock price movements can give investors a better opportunity to enter the stock and potentially buy at a lower price. One question that needs to be answered is whether Headlam Group’s current share price of £1.44 reflects the true value of the small cap? Or is it currently undervalued, giving us an opportunity to buy? Let’s take a look at Headlam Group’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 Headlam Group

Is Headlam band still cheap?

Headlam Group is currently expensive based on our price multiples model, where we look at the company’s price-to-earnings ratio relative to the industry average. We used the price-to-earnings ratio in this case because there is not enough visibility to forecast its cash flows. The stock’s ratio of 15x is currently well above the industry average of 11.49x, meaning it is trading at a higher price than its peers. But is there another opportunity to buy cheap in the future? Since Headlam Group’s stock is quite volatile (meaning its price movements are magnified relative to the rest of the market), this could mean the price can fall, giving us another chance to ‘buy in the future. This is based on its high beta, which is a good indicator of stock price volatility.

What does the future of Headlam Group look like?

Investors looking for growth in their portfolio may want to consider a company’s prospects before buying its shares. Although value investors argue that it’s the intrinsic value relative to the price that matters most, a more compelling investment thesis would be high growth potential at a cheap price. However, in the case of Headlam Group, very negative earnings growth is expected over the next few years, which does not help to strengthen its investment thesis. It appears that the risk of future uncertainty is high, at least in the short term.

What this means for you

Are you a shareholder? If you believe HEAD is currently trading above its peers, selling high and buying it back when its price falls towards the industry PE ratio can be profitable. Given the risk associated with a negative growth outlook, this could be a good time to reduce the total risk of your portfolio. But before making this decision, check if its fundamentals have changed.

Are you a potential investor? If you’ve been watching HEAD for a while, now may not be the best time to get into the stock. The price has outperformed its industry peers, in addition to risky future prospects. However, there are also other important factors that we haven’t considered today, such as the financial strength of the company. If the price drops in the future, will you be informed enough to buy?

With this in mind, we would not consider investing in a stock without a thorough understanding of the risks. For example, we identified 3 warning signs for Headlam Group (1 cannot be ignored) that you should know.

If you are no longer interested in Headlam Group, you can use our free platform to consult our list of over 50 other stocks with high growth potential.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to constitute financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your objectives or your financial situation. Our goal is to provide you with targeted, long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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