Is There Now An Opportunity In Electrocomponents plc (LON:ECM)?

Electrocomponents plc (LON:ECM), is not the largest company out there, but it saw its share price hover around a small range of UK£9.87 to UK£10.80 over the last few weeks. But is this actually reflective of the share value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Electrocomponents’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Electrocomponents

Is Electrocomponents still cheap?

Electrocomponents appears to be overvalued by 22% at the moment, based on my discounted cash flow valuation. The stock is currently priced at UK£10.40 on the market compared to my intrinsic value of £8.53. This means that the opportunity to buy Electrocomponents at a good price has disappeared! In addition to this, it seems like Electrocomponents’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 Electrocomponents?

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 91% 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? ECM’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe ECM 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 ECM 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 is encouraging for ECM, which 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 Electrocomponents at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Electrocomponents.

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.

If you decide to trade Electrocomponents, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.