Earthport plc (AIM:EPO), a it services company based in United Kingdom, received a lot of attention from a substantial price movement on the AIM in the over the last few months, increasing to £0.28 at one point, and dropping to the lows of £0.19. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether EPO’s current trading price of £0.19 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at EPO’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. Check out our latest analysis for Earthport
Is EPO still cheap?The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-book (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that EPO’s ratio of 2.9x is trading slightly above its industry peers’ ratio of 2.8x, which means if you buy EPO today, you’d be paying a relatively reasonable price for it. And if you believe EPO should be trading in this range, then there isn’t really any room for the share price grow beyond what it’s currently trading. In addition to this, it seems like EPO’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because EPO’s stock is less volatile than the wider market given its low beta.
Can we expect growth from EPO?Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 EPO future expectations. With revenues expected to grow by 79.38% over the next couple of years, the future seems bright for EPO. If the level of expenses is able to be maintained, it looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has already priced in EPO’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at EPO? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping tabs on EPO, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for EPO, 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.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Earthport. You can find everything you need to know about EPO in the latest infographic research report. If you are no longer interested in Earthport, you can use our free platform to see my list of over 50 other stocks with a high growth potential.