Silver Chef Limited (ASX:SIV), a trade distributors company based in Australia, saw a decent share price growth in the teens level on the ASX over the last few months. 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 Silver Chef’s outlook and value based on the most recent financial data to see if the opportunity still exists. View out our latest analysis for Silver Chef
What’s the opportunity in Silver Chef?Silver Chef is currently overpriced based on my relative valuation model. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 57.91x is currently well-above the industry average of 18.48x, meaning that it is trading at a more expensive price relative to its peers. Another thing to keep in mind is that Silver Chef’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.
Can we expect growth from Silver Chef?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. With profit expected to more than double over the next couple of years, the future seems bright for Silver Chef. 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 well and truly priced in SIV’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe SIV should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on SIV for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for SIV, which means it’s worth diving deeper into other factors 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 Silver Chef. You can find everything you need to know about Silver Chef in the latest infographic research report. If you are no longer interested in Silver Chef, you can use our free platform to see my list of over 50 other stocks with a high growth potential.