Is Booktopia Group Limited (ASX:BKG) Potentially Undervalued?

Booktopia Group Limited (ASX:BKG), might not be a large cap stock, but it led the ASX gainers with a relatively large price hike in the past couple of weeks. While good news for shareholders, the company has traded much higher in the past year. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Booktopia Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Booktopia Group

Is Booktopia Group Still Cheap?

The stock seems fairly valued at the moment according to our valuation model. It’s trading around 17% below our intrinsic value, which means if you buy Booktopia Group today, you’d be paying a fair price for it. And if you believe the company’s true value is A$0.08, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that Booktopia Group’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 Booktopia Group 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. In Booktopia Group's case, its revenues over the next few years are expected to grow by 97%, indicating a highly optimistic future ahead. If expense does not increase by the same rate, or higher, this top line growth should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? BKG’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 financial strength of the company. 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 BKG, now may not be the most advantageous 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 further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. To help with this, we've discovered 6 warning signs (4 are a bit concerning!) that you ought to be aware of before buying any shares in Booktopia Group.

If you are no longer interested in Booktopia Group, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.