RediShred Capital Corp. (CVE:KUT), is not the largest company out there, but it saw a significant share price rise of over 20% in the past couple of months on the TSXV. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at RediShred Capital’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What is RediShred Capital worth?
Great news for investors – RediShred Capital is still trading at a fairly cheap price 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 24.24x is currently well-below the industry average of 34.99x, meaning that it is trading at a cheaper price relative to its peers. RediShred 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 industry peers, 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 does the future of RediShred Capital look like?
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. With profit expected to grow by a double-digit 16% in the upcoming year, the short-term outlook is positive for RediShred 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? Since KUT is currently trading below the industry PE ratio, it may be a great time to increase your holdings in the stock. With a positive profit outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current price multiple.
Are you a potential investor? If you’ve been keeping an eye on KUT for a while, now might be the time to enter the stock. Its prosperous future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy KUT. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed assessment.
With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've found that RediShred Capital has 4 warning signs (1 is potentially serious!) that deserve your attention before going any further with your analysis.
If you are no longer interested in RediShred Capital, 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. 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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