While Event Hospitality & Entertainment Limited (ASX:EVT) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price increase on the ASX over the last few months. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today I will analyse the most recent data on Event Hospitality & Entertainment’s outlook and valuation to see if the opportunity still exists.
What's the opportunity in Event Hospitality & Entertainment?
According to my valuation model, Event Hospitality & Entertainment seems to be fairly priced at around 1.18% above my intrinsic value, which means if you buy Event Hospitality & Entertainment today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is A$12.83, then there isn’t really any room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that Event Hospitality & Entertainment’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.
Can we expect growth from Event Hospitality & Entertainment?
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 grow by 86% over the next year, the near-term future seems bright for Event Hospitality & Entertainment. 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? EVT’s optimistic future growth appears to have been factored into the current share price, 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 tabs on EVT, 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 diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
So while earnings quality is important, it's equally important to consider the risks facing Event Hospitality & Entertainment at this point in time. Every company has risks, and we've spotted 2 warning signs for Event Hospitality & Entertainment (of which 1 doesn't sit too well with us!) 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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