When Should You Buy Volex plc (LON:VLX)?

By
Simply Wall St
Published
March 03, 2020
AIM:VLX

Volex plc (LON:VLX), which is in the electrical business, and is based in United Kingdom, saw significant share price movement during recent months on the AIM, rising to highs of UK£1.69 and falling to the lows of UK£1.16. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Volex's current trading price of UK£1.20 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Volex’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Volex

What's the opportunity in Volex?

Good news, investors! Volex is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio to 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 Volex’s ratio of 16.37x is below its peer average of 21.94x, which indicates the stock is trading at a lower price compared to the Electrical industry. What’s more interesting is that, Volex’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to move closer to its industry peers, 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.

What does the future of Volex look like?

AIM:VLX Past and Future Earnings, March 3rd 2020
AIM:VLX Past and Future Earnings, March 3rd 2020

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. However, with a relatively muted revenue growth of 9.0% expected in the upcoming year, short term growth doesn’t seem like a key driver for a buy decision for Volex.

What this means for you:

Are you a shareholder? Even though growth is relatively muted, since VLX is currently trading below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. However, there are also other factors such as financial health to consider, which could explain the current price multiple.

Are you a potential investor? If you’ve been keeping an eye on VLX for a while, now might be the time to make a leap. Its future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy VLX. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed investment decision.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Volex. You can find everything you need to know about Volex in the latest infographic research report. If you are no longer interested in Volex, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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