Why Atlas Engineered Products Ltd. (CVE:AEP) Could Be Worth Watching

Atlas Engineered Products Ltd. (CVE:AEP), is not the largest company out there, but it saw a significant share price rise of over 20% in the past couple of months on the TSXV. As a small cap stock, hardly covered by any analysts, 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? Today I will analyse the most recent data on Atlas Engineered Products’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Atlas Engineered Products

Is Atlas Engineered Products Still Cheap?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 Atlas Engineered Products’s ratio of 6.38x is trading slightly above its industry peers’ ratio of 5.59x, which means if you buy Atlas Engineered Products today, you’d be paying a relatively reasonable price for it. And if you believe that Atlas Engineered Products should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Although, there may be an opportunity to buy in the future. This is because Atlas Engineered Products’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 Atlas Engineered Products 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. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of Atlas Engineered Products, it is expected to deliver a negative earnings growth of -7.9%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What This Means For You

Are you a shareholder? Currently, AEP appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on AEP, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on AEP for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on AEP should the price fluctuate below the industry PE ratio.

If you'd like to know more about Atlas Engineered Products 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 Atlas Engineered Products you should be mindful of and 1 of these can't be ignored.

If you are no longer interested in Atlas Engineered Products, 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.