When Should You Buy The Alumasc Group plc (LON:ALU)?

While The Alumasc Group plc (LON:ALU) might not be the most widely known stock at the moment, it saw a decent share price growth in the teens level on the AIM over the last few months. 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 Alumasc Group’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Alumasc Group

What's The Opportunity In Alumasc Group?

Great news for investors – Alumasc Group is still trading at a fairly cheap price. According to my valuation, the intrinsic value for the stock is £2.37, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. What’s more interesting is that, Alumasc Group’s share price is theoretically quite stable, which could mean two things: firstly, it may take the share price a while to move to its intrinsic value, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from Alumasc Group?

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 -1.4% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Alumasc Group. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Although ALU is currently undervalued, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to ALU, 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 tabs on ALU for some time, 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.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. At Simply Wall St, we found 2 warning signs for Alumasc Group and we think they deserve your attention.

If you are no longer interested in Alumasc Group, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.