DLH Holdings Corp. (NASDAQ:DLHC), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the NASDAQCM. As a small cap stock, hardly covered by any analysts, 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 DLH Holdings's outlook and value based on the most recent financial data to see if the opportunity still exists.
See our latest analysis for DLH Holdings
Is DLH Holdings still cheap?
Great news for investors - DLH Holdings 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 10.05x is currently well-below the industry average of 16.77x, meaning that it is trading at a cheaper price relative to its peers. What's more interesting is that, DLH Holdings's share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What does the future of DLH Holdings look like?
Future outlook is an important aspect when you're looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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 -10% expected next year, near-term growth certainly doesn't appear to be a driver for a buy decision for DLH Holdings. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Although DLHC is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. I recommend you think about whether you want to increase your portfolio exposure to DLHC, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you've been keeping tabs on DLHC for some time, but hesitant on making the leap, I recommend you research further into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
If you want to dive deeper into DLH Holdings, you'd also look into what risks it is currently facing. To that end, you should learn about the 4 warning signs we've spotted with DLH Holdings (including 1 which is a bit concerning).
If you are no longer interested in DLH Holdings, 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.