Is There Now An Opportunity In Verde AgriTech Ltd (TSE:NPK)?

Verde AgriTech Ltd (TSE:NPK), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the TSX 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 Verde AgriTech’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Verde AgriTech

Is Verde AgriTech Still Cheap?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Verde AgriTech’s ratio of 9.61x is trading slightly below its industry peers’ ratio of 9.74x, which means if you buy Verde AgriTech today, you’d be paying a reasonable price for it. And if you believe Verde AgriTech should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Although, there may be an opportunity to buy in the future. This is because Verde AgriTech’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 kind of growth will Verde AgriTech 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. With revenues expected to grow by a double-digit 18% in the upcoming year, the outlook is positive for Verde AgriTech. If the level of expenses is able to be maintained, it looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? NPK’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at NPK? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on NPK, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for NPK, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you want to dive deeper into Verde AgriTech, you'd also look into what risks it is currently facing. For example, Verde AgriTech has 5 warning signs (and 2 which make us uncomfortable) we think you should know about.

If you are no longer interested in Verde AgriTech, 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. 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.