At UK£3.95, Is It Time To Put Luceco plc (LON:LUCE) On Your Watch List?

Luceco plc (LON:LUCE), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the LSE over the last few months. Less-covered, small caps sees 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? Let’s examine Luceco’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Luceco

What's the opportunity in Luceco?

Great news for investors – Luceco is still trading at a fairly cheap price. My valuation model shows that the intrinsic value for the stock is £5.16, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. However, given that Luceco’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of Luceco look like?

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. However, with a negative profit growth of -1.0% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Luceco. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Although LUCE is currently undervalued, the adverse prospect of negative growth brings about some degree of risk. I recommend you think about whether you want to increase your portfolio exposure to LUCE, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping tabs on LUCE for some time, but hesitant on making the leap, I recommend you research further into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Our analysis shows 4 warning signs for Luceco (1 doesn't sit too well with us!) and we strongly recommend you look at these before investing.

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

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.

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