While Valvoline Inc. (NYSE:VVV) might not have the largest market cap around , it saw significant share price movement during recent months on the NYSE, rising to highs of US$40.19 and falling to the lows of US$34.44. 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 Valvoline's current trading price of US$34.51 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Valvoline’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What Is Valvoline Worth?
According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Valvoline’s ratio of 15.98x is trading slightly above its industry peers’ ratio of 13.78x, which means if you buy Valvoline today, you’d be paying a relatively sensible price for it. And if you believe that Valvoline should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. So, is there another chance to buy low in the future? Given that Valvoline’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.
Check out our latest analysis for Valvoline
What kind of growth will Valvoline generate?
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. However, with a negative profit growth of -6.7% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Valvoline. This certainty tips the risk-return scale towards higher risk.
What This Means For You
Are you a shareholder? VVV 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 de-risk 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 VVV, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on VVV for a while, now may not be the most optimal 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 VVV should the price fluctuate below the industry PE ratio.
So while earnings quality is important, it's equally important to consider the risks facing Valvoline at this point in time. Case in point: We've spotted 2 warning signs for Valvoline you should be aware of.
If you are no longer interested in Valvoline, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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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.