Is EML Payments Limited (ASX:EML) Potentially Undervalued?

EML Payments Limited (ASX:EML), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the ASX over the last few months, increasing to AU$4.23 at one point, and dropping to the lows of AU$3.16. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether EML Payments' current trading price of AU$3.16 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at EML Payments’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for EML Payments

What's the opportunity in EML Payments?

EML Payments appears to be overvalued by 35% at the moment, based on my discounted cash flow valuation. The stock is currently priced at AU$3.16 on the market compared to my intrinsic value of A$2.34. Not the best news for investors looking to buy! If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that EML Payments’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will EML Payments generate?

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. In EML Payments' case, its revenues over the next few years are expected to grow by 70%, 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? EML’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe EML should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on EML for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook is encouraging for EML, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into EML Payments, you'd also look into what risks it is currently facing. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of EML Payments.

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

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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