Why Adacel Technologies Limited (ASX:ADA) Could Be Worth Watching

Adacel Technologies Limited (ASX:ADA), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the ASX over the last few months. Less-covered, small caps tend to present 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? Let’s examine Adacel Technologies’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Adacel Technologies

What is Adacel Technologies worth?

Great news for investors – Adacel Technologies is still trading at a fairly cheap price according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 16.42x is currently well-below the industry average of 32.14x, meaning that it is trading at a cheaper price relative to its peers. Although, there may be another chance to buy again in the future. This is because Adacel Technologies’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 does the future of Adacel Technologies 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. However, with a relatively muted revenue growth of 9.9% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Adacel Technologies, at least in the short term.

What this means for you:

Are you a shareholder? Even though growth is relatively muted, since ADA is currently trading below the industry PE ratio, it may be a great time to increase your holdings in the stock. However, there are also other factors such as capital structure to consider, which could explain the current price multiple.

Are you a potential investor? If you’ve been keeping an eye on ADA for a while, now might be the time to make a leap. Its future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy ADA. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed assessment.

If you want to dive deeper into Adacel Technologies, you'd also look into what risks it is currently facing. For instance, we've identified 4 warning signs for Adacel Technologies (1 makes us a bit uncomfortable) you should be familiar with.

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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.
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