When Should You Buy Velocity Composites plc (LON:VEL)?

Velocity Composites plc (LON:VEL), is not the largest company out there, but it led the AIM gainers with a relatively large price hike in the past couple of weeks. While good news for shareholders, the company has traded much higher in the past year. 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 we will analyse the most recent data on Velocity Composites’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Velocity Composites

Is Velocity Composites Still Cheap?

The stock seems fairly valued at the moment according to our valuation model. It’s trading around 16.51% above our intrinsic value, which means if you buy Velocity Composites today, you’d be paying a relatively fair price for it. And if you believe that the stock is really worth £0.22, 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 Velocity Composites’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 kind of growth will Velocity Composites generate?

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. With profit expected to grow by 73% over the next year, the near-term future seems bright for Velocity Composites. 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? It seems like the market has already priced in VEL’s positive outlook, 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 VEL, 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.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 4 warning signs for Velocity Composites and we think they deserve your attention.

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

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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.