Yahoo Finance When Should You Buy Diversified Royalty Corp. (TSE:DIV)?
While Diversified Royalty Corp. (TSE:DIV) might not have the largest market cap around , it maintained its current share price over the past couple of month on the TSX, with a relatively tight range of CA$2.65 to CA$2.90. However, does this price actually reflect the true value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Diversified Royalty’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for Diversified Royalty
What Is Diversified Royalty Worth?
Diversified Royalty appears to be expensive according to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Diversified Royalty’s ratio of 26.27x is above its peer average of 19.69x, which suggests the stock is trading at a higher price compared to the Specialty Retail industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since Diversified Royalty’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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 Diversified Royalty generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. In Diversified Royalty's case, its revenues over the next few years are expected to grow by 30%, indicating a highly 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 well and truly priced in DIV’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe DIV should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on DIV for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for DIV, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
If you'd like to know more about Diversified Royalty as a business, it's important to be aware of any risks it's facing. Our analysis shows 5 warning signs for Diversified Royalty (2 are significant!) and we strongly recommend you look at them before investing.
If you are no longer interested in Diversified Royalty, 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.
