Why Babcock International Group PLC (LON:BAB) Could Be Worth Watching

While Babcock International Group PLC (LON:BAB) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the LSE, rising to highs of UK£3.37 and falling to the lows of UK£2.92. 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 Babcock International Group's current trading price of UK£3.08 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 Babcock International Group’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 Babcock International Group

What Is Babcock International Group Worth?

According to my valuation model, Babcock International Group seems to be fairly priced at around 3.90% above my intrinsic value, which means if you buy Babcock International Group today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is £2.97, there’s only an insignificant downside when the price falls to its real value. Is there another opportunity to buy low in the future? Since Babcock International Group’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of Babcock International Group look like?

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. With profit expected to grow by 28% over the next couple of years, the future seems bright for Babcock International Group. 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 BAB’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 track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping an eye on BAB, now may not be the most advantageous 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.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Our analysis shows 2 warning signs for Babcock International Group (1 makes us a bit uncomfortable!) and we strongly recommend you look at these before investing.

If you are no longer interested in Babcock International Group, 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.