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Is Franklin Covey Co. (NYSE:FC) Potentially Undervalued?

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Franklin Covey Co. (NYSE:FC), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$49.30 at one point, and dropping to the lows of US$34.78. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Franklin Covey's current trading price of US$36.75 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Franklin Covey’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 Franklin Covey

Is Franklin Covey still cheap?

Franklin Covey appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and 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 Franklin Covey’s ratio of 26.03x is above its peer average of 14.81x, which suggests the stock is trading at a higher price compared to the Professional Services industry. But, is there another opportunity to buy low in the future? Since Franklin Covey’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.

Can we expect growth from Franklin Covey?

earnings-and-revenue-growth
earnings-and-revenue-growth

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. Though in the case of Franklin Covey, it is expected to deliver a highly negative earnings growth in the upcoming, 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? If you believe FC is currently trading above its peers, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. Given the uncertainty from negative growth in the future, this could be the right time to de-risk your portfolio. 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 an eye on FC for a while, now may not be the best time to enter into the stock. The price has climbed past its industry peers, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the track record of its management. Should the price fall in the future, will you be well-informed enough to buy?

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 1 warning sign for Franklin Covey you should be aware of.

If you are no longer interested in Franklin Covey, 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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