Yahoo Finance At CA$34.62, Is It Time To Put Russel Metals Inc. (TSE:RUS) On Your Watch List?
While Russel Metals Inc. (TSE:RUS) might not be the most widely known stock at the moment, it saw a decent share price growth in the teens level on the TSX over the last few months. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Today I will analyse the most recent data on Russel Metals’s outlook and valuation to see if the opportunity still exists.
Check out our latest analysis for Russel Metals
What's the opportunity in Russel Metals?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Russel Metals’s ratio of 6.79x is trading slightly below its industry peers’ ratio of 8.9x, which means if you buy Russel Metals today, you’d be paying a decent price for it. And if you believe that Russel Metals should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Although, there may be an opportunity to buy in the future. This is because Russel Metals’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
Can we expect growth from Russel Metals?
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. 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 the company's future expectations. Though in the case of Russel Metals, it is expected to deliver a negative earnings growth of -12%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? Currently, RUS appears to be trading around industry price multiples, 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 beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on RUS, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on RUS for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, 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 RUS should the price fluctuate below the industry PE ratio.
If you'd like to know more about Russel Metals as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Russel Metals (of which 1 is a bit unpleasant!) you should know about.
If you are no longer interested in Russel Metals, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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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