Why XP Power Limited (LON:XPP) Could Be Worth Watching

By
Simply Wall St
Published
February 23, 2022
LSE:XPP
Source: Shutterstock

XP Power Limited (LON:XPP), is not the largest company out there, but it received a lot of attention from a substantial price movement on the LSE over the last few months, increasing to UK£53.00 at one point, and dropping to the lows of UK£44.40. 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 XP Power's current trading price of UK£44.40 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 XP Power’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for XP Power

What's the opportunity in XP Power?

According to my valuation model, XP Power seems to be fairly priced at around 17% below my intrinsic value, which means if you buy XP Power today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth £53.24, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that XP Power’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will XP Power generate?

earnings-and-revenue-growth
LSE:XPP Earnings and Revenue Growth February 22nd 2022

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. XP Power's earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has already priced in XPP’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 financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping tabs on XPP, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Every company has risks, and we've spotted 1 warning sign for XP Power you should know about.

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

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