What Does G8 Education Limited's (ASX:GEM) Share Price Indicate?

G8 Education Limited (ASX:GEM), is not the largest company out there, but it received a lot of attention from a substantial price increase on the ASX over the last few months. 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, could the stock still be trading at a relatively cheap price? Today I will analyse the most recent data on G8 Education’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for G8 Education

Is G8 Education still cheap?

According to my valuation model, G8 Education seems to be fairly priced at around 15% below my intrinsic value, which means if you buy G8 Education today, you’d be paying a reasonable price for it. And if you believe the company’s true value is A$1.46, then there’s not much of an upside to gain from mispricing. Is there another opportunity to buy low in the future? Since G8 Education’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

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. 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 65% 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 confidence to invest in the company should the price drop below its fair 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 optimistic prospect is encouraging for the company, 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.

If you want to dive deeper into G8 Education, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 3 warning signs for G8 Education (of which 1 is a bit unpleasant!) 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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