At €0.62, Is It Time To Put Atari SA (EPA:ATA) On Your Watch List?

Atari SA (EPA:ATA), is not the largest company out there, but it received a lot of attention from a substantial price increase on the ENXTPA 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? Today I will analyse the most recent data on Atari’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Atari

Is Atari still cheap?

Atari appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and 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 Atari’s ratio of 69.09x is above its peer average of 37.27x, which suggests the stock is trading at a higher price compared to the Entertainment industry. Another thing to keep in mind is that Atari’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.

What does the future of Atari 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 Atari. 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? ATA’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe ATA should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on ATA for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for ATA, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you'd like to know more about Atari as a business, it's important to be aware of any risks it's facing. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of Atari.

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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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