At UK£0.44, Is Topps Tiles Plc (LON:TPT) Worth Looking At Closely?

Topps Tiles Plc (LON:TPT), is not the largest company out there, but it received a lot of attention from a substantial price increase on the LSE over the last few months. While good news for shareholders, the company has traded much higher in the past year. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine Topps Tiles’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

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The share price seems sensible at the moment according to our price multiple model, where we compare the company’s price-to-earnings ratio to the industry average. We’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 14.32x is currently trading slightly below its industry peers’ ratio of 15.03x, which means if you buy Topps Tiles today, you’d be paying a decent price for it. And if you believe Topps Tiles should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, it seems like Topps Tiles’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

View our latest analysis for Topps Tiles

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. Topps Tiles’ earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

Are you a shareholder? TPT’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at TPT? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on TPT, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for TPT, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

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 discovered 4 warning signs that you should run your eye over to get a better picture of Topps Tiles.

If you are no longer interested in Topps Tiles, 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.