While Frontdoor, Inc. (NASDAQ:FTDR) might not have the largest market cap around , it led the NASDAQGS gainers with a relatively large price hike in the past couple of weeks. The company is now trading at yearly-high levels following the recent surge in its share price. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company's outlook is already priced into the stock. However, what if the stock is still a bargain? Let's take a look at Frontdoor's outlook and value based on the most recent financial data to see if the opportunity still exists.
Is Frontdoor Still Cheap?
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. 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 18.01x is currently trading slightly below its industry peers' ratio of 21.89x, which means if you buy Frontdoor today, you'd be paying a decent price for it. And if you believe that Frontdoor should be trading at this level in the long run, then there's not much of an upside to gain over and above other industry peers. In addition to this, it seems like Frontdoor's share price is quite stable, which could mean there may be less chances to buy low in the future now that it's trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.
What kind of growth will Frontdoor generate?
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. 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. With profit expected to grow by a double-digit 12% over the next couple of years, the outlook is positive for Frontdoor. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What This Means For You
Are you a shareholder? FTDR'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 FTDR? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?
Are you a potential investor? If you've been keeping an eye on FTDR, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for FTDR, which means it's worth diving deeper into 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. At Simply Wall St, we found 2 warning signs for Frontdoor and we think they deserve your attention.
If you are no longer interested in Frontdoor, 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.