Should You Investigate Smartgroup Corporation Ltd (ASX:SIQ) At AU$7.68?

While Smartgroup Corporation Ltd (ASX:SIQ) might not be the most widely known stock at the moment, it saw a significant share price rise of over 20% in the past couple of months on the ASX. As a 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 Smartgroup’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Smartgroup

Is Smartgroup still cheap?

Great news for investors – Smartgroup is still trading at a fairly cheap price. According to my valuation, the intrinsic value for the stock is A$11.76, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. Another thing to keep in mind is that Smartgroup’s share price may be 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.

What kind of growth will Smartgroup 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 32% over the next couple of years, the future seems bright for Smartgroup. 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? Since SIQ is currently undervalued, it may be a great time to accumulate more of your holdings in the stock. With a positive outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current undervaluation.

Are you a potential investor? If you’ve been keeping an eye on SIQ for a while, now might be the time to make a leap. Its buoyant future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy SIQ. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed investment decision.

So while earnings quality is important, it's equally important to consider the risks facing Smartgroup at this point in time. You'd be interested to know, that we found 2 warning signs for Smartgroup and you'll want to know about them.

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This article by Simply Wall St is general in nature. 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.
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