While Solar A/S (CPH:SOLAR B) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% in the past couple of months on the CPSE. Less-covered, small caps sees 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 take a look at Solar’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What's the opportunity in Solar?
Great news for investors – Solar is still trading at a fairly cheap price. According to my valuation, the intrinsic value for the stock is DKK436.46, but it is currently trading at kr.347 on the share market, meaning that there is still an opportunity to buy now. Although, there may be another chance to buy again in the future. This is because Solar’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 Solar generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. However, with a negative profit growth of -7.9% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Solar. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Although SOLAR B is currently undervalued, the adverse prospect of negative growth brings about some degree of risk. I recommend you think about whether you want to increase your portfolio exposure to SOLAR B, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you’ve been keeping an eye on SOLAR B for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Our analysis shows 3 warning signs for Solar (1 shouldn't be ignored!) and we strongly recommend you look at them before investing.
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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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