While Exco Technologies Limited (TSE:XTC) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price increase on the TSX over the last few months. As a small cap stock, which tends to lack high analyst coverage, 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 take a look at Exco Technologies’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What's the opportunity in Exco Technologies?
Great news for investors – Exco 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 14.27x is currently well-below the industry average of 25.21x, meaning that it is trading at a cheaper price relative to its peers. However, given that Exco Technologies’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 does the future of Exco Technologies look like?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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 the upcoming year, Exco Technologies' earnings are expected to increase by 47%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? Since XTC is currently trading below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. With a positive profit outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as financial health to consider, which could explain the current price multiple.
Are you a potential investor? If you’ve been keeping an eye on XTC for a while, now might be the time to enter the stock. Its prosperous future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy XTC. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed assessment.
If you'd like to know more about Exco Technologies as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for Exco Technologies you should be aware of.
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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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Exco Technologies Limited, together with its subsidiaries, designs, develops, manufactures, and sells dies, molds, components and assemblies, and consumable equipment for the die-cast, extrusion, and automotive industries.
Excellent balance sheet average dividend payer.