Freelancer Limited (ASX:FLN), a internet company based in Australia, received a lot of attention from a substantial price movement on the ASX over the last few months, increasing to A$0.52 at one point, and dropping to the lows of A$0.40. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Freelancer’s current trading price of A$0.43 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 Freelancer’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. View out our latest analysis for Freelancer
What’s the opportunity in Freelancer?According to my relative valuation model, the stock is currently overvalued. I’ve used the price-to-book ratio in this instance because there’s not enough visibility to forecast its cash flows, and its earnings doesn’t seem to reflect its true value. The stock’s ratio of 6.15x is currently well-above the industry average of 3.6x, meaning that it is trading at a more expensive price relative to its peers. Furthermore, Freelancer’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
What does the future of Freelancer 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. With profit expected to grow by 76.19% over the next year, the near-term future seems bright for Freelancer. It looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in FLN’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe FLN 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 an eye on FLN for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for FLN, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Freelancer. You can find everything you need to know about Freelancer in the latest infographic research report. If you are no longer interested in Freelancer, you can use our free platform to see my list of over 50 other stocks with a high growth potential.