While Rapala VMC Corporation (HEL:RAP1V) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price increase on the HLSE 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 take a look at Rapala VMC’s outlook and value based on the most recent financial data to see if the opportunity still exists.
Is Rapala VMC still cheap?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 19.30% above my intrinsic value, which means if you buy Rapala VMC today, you’d be paying a relatively reasonable price for it. And if you believe that the stock is really worth €4.81, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because Rapala VMC’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 Rapala VMC 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 more than double over the next couple of years, the future seems bright for Rapala VMC. 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? RAP1V’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping tabs on RAP1V, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
If you'd like to know more about Rapala VMC as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 3 warning signs for Rapala VMC 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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