Should You Think About Buying PayPoint plc (LON:PAY) Now?

PayPoint plc (LON:PAY), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the LSE over the last few months, increasing to UK£6.70 at one point, and dropping to the lows of UK£5.77. 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 PayPoint's current trading price of UK£6.28 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 PayPoint’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 PayPoint

What is PayPoint worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 10.0% below my intrinsic value, which means if you buy PayPoint today, you’d be paying a fair price for it. And if you believe the company’s true value is £6.98, 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 PayPoint’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 PayPoint 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. Though in the case of PayPoint, it is expected to deliver a negative earnings growth of -15%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? Currently, PAY appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on PAY for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on PAY should the price fluctuate below its true value.

If you want to dive deeper into PayPoint, you'd also look into what risks it is currently facing. Our analysis shows 3 warning signs for PayPoint (1 makes us a bit uncomfortable!) and we strongly recommend you look at them before investing.

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

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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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