When Should You Buy Sureserve Group plc (LON:SUR)?

While Sureserve Group plc (LON:SUR) might not be the most widely known stock at the moment, it saw a significant share price rise of over 20% in the past couple of months on the AIM. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at Sureserve Group’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for Sureserve Group

What's the opportunity in Sureserve Group?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 4.3% below my intrinsic value, which means if you buy Sureserve Group today, you’d be paying a reasonable price for it. And if you believe the company’s true value is £0.72, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Sureserve Group’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of Sureserve Group 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. In the upcoming year, Sureserve Group's earnings are expected to increase by 28%, indicating a highly optimistic future ahead. This should lead to more 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 SUR’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 SUR, 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.

So while earnings quality is important, it's equally important to consider the risks facing Sureserve Group at this point in time. In terms of investment risks, we've identified 1 warning sign with Sureserve Group, and understanding it should be part of your investment process.

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This article by Simply Wall St is general in nature. 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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