April 19, 2024

To get a more comprehensive view of the firm’s valuation, I projected the company’s net income for the next 10 years, assuming an average growth of 7% per year.

My result, based on a method called discounted cash flow analysis, was a fair value of about £1.45 for each share.

This means the investment could be priced at a 30% discount, as each share currently sells for around £1.

There is risk if I invest

Now, although the company appears undervalued and may be selling at a 30% discount based on my estimates, there is no guarantee that it will earn my estimated 7% per year.

I made my forecast incredibly conservative, but economic difficulties, including another unexpected event like a pandemic, could devastate my chances of huge profits.

Additionally, the company is highly dependent on the housing market, so any changes in trends in the sector could impact shares.

For example, since the company specializes in clay bricks and related products, it may face problems if consumer preferences change.

bonus element

It’s not just the company’s valuation and financials that I like about investing.

It also has a 4.4% dividend yield, providing it pays out 46% of its earnings to shareholders.

This is a buy for me

This company is at the top of my watchlist right now.

I’m planning on making some investments in February and it looks like this will be one of them.

The post I think a stock with this valuation could lose 30% of its value appeared first on The Motley Fool UK.

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Oliver Rodzianko has no position in any stocks mentioned. The Motley Fool UK has no position in any stocks mentioned. The views expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a wide variety of insights can make us better investors.

Motley Fool UK 2024

Source: uk.finance.yahoo.com

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