Vita Group Limited (ASX:VTG), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the ASX. 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 Vita Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
See our latest analysis for Vita Group
What is Vita Group worth?
According to my valuation model, Vita Group seems to be fairly priced at around 9.9% below my intrinsic value, which means if you buy Vita Group today, you’d be paying a reasonable price for it. And if you believe the company’s true value is A$1.15, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Vita Group’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.
Can we expect growth from Vita Group?
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. However, with a negative profit growth of -6.9% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Vita Group. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? VTG seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in 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 tabs on VTG for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The stock appears 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 VTG should the price fluctuate below its true value.
Since timing is quite important when it comes to individual stock picking, it's worth taking a look at what those latest analysts forecasts are. So feel free to check out our free graph representing analyst forecasts.
If you are no longer interested in Vita 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. 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:VTG
Vita Group
Vita Group Limited operates in the skin health and wellness industry in Australia.
Adequate balance sheet and overvalued.
