At €35.90, Is It Time To Put Wavestone SA (EPA:WAVE) On Your Watch List?

Wavestone SA (EPA:WAVE), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the ENXTPA. 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? Let’s examine Wavestone’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Wavestone

Is Wavestone still cheap?

Wavestone appears to be overvalued by 34% at the moment, based on my discounted cash flow valuation. The stock is currently priced at €35.90 on the market compared to my intrinsic value of €26.75. This means that the buying opportunity has probably disappeared for now. But, is there another opportunity to buy low in the future? Given that Wavestone’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Wavestone 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. Wavestone's earnings over the next few years are expected to increase by 30%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? WAVE’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe WAVE should trade below its current price, selling high and buying it back up again when its price falls towards its real value 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 an eye on WAVE for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook is encouraging for WAVE, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

It can be quite valuable to consider what analysts expect for Wavestone from their most recent forecasts. So feel free to check out our free graph representing analyst forecasts.

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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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