Is Now The Time To Look At Buying Somero Enterprises, Inc. (LON:SOM)?

Somero Enterprises, Inc. (LON:SOM), is not the largest company out there, but it received a lot of attention from a substantial price increase on the AIM 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 Somero Enterprises’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Somero Enterprises

What's the opportunity in Somero Enterprises?

According to my valuation model, the stock is currently overvalued by about 28%, trading at UK£3.65 compared to my intrinsic value of £2.85. Not the best news for investors looking to buy! In addition to this, it seems like Somero Enterprises’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, 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 Somero Enterprises?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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. Though in the case of Somero Enterprises, it is expected to deliver a relatively unexciting earnings growth of 2.3%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for Somero Enterprises, at least in the near term.

What this means for you:

Are you a shareholder? SOM’s 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 SOM 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 tabs on SOM for some time, 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 means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Somero Enterprises at this point in time. While conducting our analysis, we found that Somero Enterprises has 1 warning sign and it would be unwise to ignore this.

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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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