While G8 Education Limited (ASX:GEM) might not be the most widely known stock at the moment, it saw a decent share price growth in the teens level on the ASX over the last few months. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s take a look at G8 Education’s outlook and value based on the most recent financial data to see if the opportunity still exists.
Check out our latest analysis for G8 Education
What's the opportunity in G8 Education?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 1.45% above my intrinsic value, which means if you buy G8 Education today, you’d be paying a relatively fair price for it. And if you believe that the stock is really worth A$1.04, there’s only an insignificant downside when the price falls to its real value. So, is there another chance to buy low in the future? Given that G8 Education’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of G8 Education look like?
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. However, with a negative profit growth of -5.0% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for G8 Education. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? GEM seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on GEM for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on GEM should the price fluctuate below its true value.
So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that G8 Education has 1 warning sign and it would be unwise to ignore this.
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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.
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About ASX:GEM
G8 Education
Provides early childhood education and care services in Australia.
Undervalued with solid track record.
