Is It Too Late To Consider Buying Electrocomponents plc (LON:ECM)?

By
Simply Wall St
Published
December 22, 2021
LSE:RS1
Source: Shutterstock

While Electrocomponents plc (LON:ECM) might not be the most widely known stock at the moment, it saw a decent share price growth in the teens level on the LSE over the last few months. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s examine Electrocomponents’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Electrocomponents

What's the opportunity in Electrocomponents?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 12% below my intrinsic value, which means if you buy Electrocomponents today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth £13.21, then there isn’t much room for the share price grow beyond what it’s currently trading. Furthermore, Electrocomponents’s low beta implies that the stock is less volatile than the wider market.

Can we expect growth from Electrocomponents?

earnings-and-revenue-growth
LSE:ECM Earnings and Revenue Growth December 22nd 2021

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. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 55% over the next couple of years, the future seems bright for Electrocomponents. 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 ECM’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 ECM, 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.

Diving deeper into the forecasts for Electrocomponents mentioned earlier will help you understand how analysts view the stock going forward. So feel free to check out our free graph representing analyst forecasts.

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

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