Is It Time To Buy Modern Water plc (AIM:MWG)?
Modern Water plc (AIM:MWG), a water utilities company based in United Kingdom, saw a double-digit share price rise of over 10% in the past couple of months on the AIM. 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 MWG’s outlook and valuation to see if the opportunity still exists. View our latest analysis for Modern Water
What’s the opportunity in MWG?
According to my relative valuation model, MWG seems to be currently fairly priced. In this instance, I’ve used the price-to-book (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that MWG’s ratio of 1.1x is trading slightly below its industry peers’ ratio of 2.9x, which means if you buy MWG today, you’d be paying a relatively fair price for it. And if you believe that MWG 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 MWG’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 MWG’s stock is less volatile than the wider market given its low beta.
What does the future of MWG look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 MWG future expectations. In MWG’s case, its revenues over the next couple of years are expected to double, indicating an incredibly optimistic future ahead. If expense does not increase by the same rate, or higher, this top line growth should lead to stronger 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 MWG’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 financial strength of the company. Have these factors changed since the last time you looked at MWG? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping tabs on MWG, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for MWG, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Modern Water. You can find everything you need to know about MWG in the latest infographic research report. If you are no longer interested in Modern Water, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
