Is Now The Time To Look At Buying G8 Education Limited (ASX:GEM)?

While G8 Education Limited (ASX:GEM) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the ASX over the last few months, increasing to AU$1.29 at one point, and dropping to the lows of AU$1.14. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether G8 Education's current trading price of AU$1.17 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 G8 Education’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 G8 Education

What is G8 Education worth?

According to my valuation model, G8 Education seems to be fairly priced at around 14.89% 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 the company’s true value is A$1.02, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because G8 Education’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will G8 Education 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 66% over the next year, the near-term future seems bright for G8 Education. 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? It seems like the market has already priced in GEM’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 the stock? 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 an eye on GEM, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, 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.

If you'd like to know more about G8 Education as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for G8 Education (of which 1 shouldn't be ignored!) you should know about.

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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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