Genworth Mortgage Insurance Australia Limited (ASX:GMA), operating in the financial services industry based in Australia, led the ASX gainers with a relatively large price hike in the past couple of weeks. 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 Genworth Mortgage Insurance Australia’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What's the opportunity in Genworth Mortgage Insurance Australia?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 12.60% above my intrinsic value, which means if you buy Genworth Mortgage Insurance Australia today, you’d be paying a relatively reasonable price for it. And if you believe that the stock is really worth A$3.26, then there isn’t really any room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that Genworth Mortgage Insurance Australia’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Genworth Mortgage Insurance Australia 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. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Genworth Mortgage Insurance Australia, at least in the near future.
What this means for you:
Are you a shareholder? Currently, GMA appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to de-risk 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 the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on GMA for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which 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 GMA should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Genworth Mortgage Insurance Australia. You can find everything you need to know about Genworth Mortgage Insurance Australia in the latest infographic research report. If you are no longer interested in Genworth Mortgage Insurance Australia, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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