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Is There Now An Opportunity In Mainstreet Equity Corp. (TSE:MEQ)?

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While Mainstreet Equity Corp. (TSE:MEQ) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the TSX, rising to highs of CA$153 and falling to the lows of CA$120. 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 Mainstreet Equity's current trading price of CA$123 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 Mainstreet Equity’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Mainstreet Equity

What is Mainstreet Equity worth?

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. 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 4.73x is currently trading slightly below its industry peers’ ratio of 8.87x, which means if you buy Mainstreet Equity today, you’d be paying a reasonable price for it. And if you believe that Mainstreet Equity 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 Mainstreet Equity’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.

What kind of growth will Mainstreet Equity generate?

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 Mainstreet Equity, 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? MEQ seems priced close to industry peers right now, 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 optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on MEQ, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on MEQ for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, 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 MEQ should the price fluctuate below the industry PE ratio.

If you'd like to know more about Mainstreet Equity as a business, it's important to be aware of any risks it's facing. For example, Mainstreet Equity has 3 warning signs (and 2 which don't sit too well with us) we think you should know about.

If you are no longer interested in Mainstreet Equity, 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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