Should You Think About Buying SThree plc (LON:STEM) Now?

SThree plc (LON:STEM), might not be a large cap stock, but it saw a decent share price growth in the teens level on the LSE over the last few months. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s take a look at SThree’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for SThree

Is SThree still cheap?

Good news, investors! SThree is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that SThree’s ratio of 12.15x is below its peer average of 25.92x, which indicates the stock is trading at a lower price compared to the Professional Services industry. Although, there may be another chance to buy again in the future. This is because SThree’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.

Can we expect growth from SThree?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 25% over the next couple of years, the future seems bright for SThree. 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? Since STEM is currently below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. With a positive outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as financial health to consider, which could explain the current price multiple.

Are you a potential investor? If you’ve been keeping an eye on STEM for a while, now might be the time to make a leap. Its buoyant future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy STEM. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed investment decision.

If you want to dive deeper into SThree, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with SThree, and understanding this should be part of your investment process.

If you are no longer interested in SThree, 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. 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.