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Terra Firma Capital Corporation (CVE:TII), operating in the financial services industry based in Canada, saw a significant share price rise of over 20% in the past couple of months on the TSXV. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s take a look at Terra Firma Capital’s outlook and value based on the most recent financial data to see if the opportunity still exists.
Is Terra Firma Capital still cheap?
According to my relative valuation model, the stock is currently overvalued. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 26.64x is currently well-above the industry average of 11.92x, meaning that it is trading at a more expensive price relative to its peers. Furthermore, Terra Firma Capital’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
What kind of growth will Terra Firma Capital generate?
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 the company’s future expectations. With profit expected to more than double in the upcoming, the future appears to be extremely bright for Terra Firma Capital. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in TII’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe TII should trade below its current price, selling high and buying it back up again when its price falls towards its real value 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 TII 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 optimistic prospect is encouraging for TII, which means it’s worth diving deeper into other factors 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 Terra Firma Capital. You can find everything you need to know about Terra Firma Capital in the latest infographic research report. If you are no longer interested in Terra Firma Capital, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.