Sportech PLC (LON:SPO), a hospitality company based in United Kingdom, received a lot of attention from a substantial price increase on the LSE over the last few months. As a small cap stock, hardly covered by any analysts, 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? Today I will analyse the most recent data on Sportech’s outlook and valuation to see if the opportunity still exists. See our latest analysis for Sportech
Is Sportech still cheap?The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-book (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that Sportech’s ratio of 2.95x is trading slightly above its industry peers’ ratio of 1.82x, which means if you buy Sportech today, you’d be paying a relatively reasonable price for it. And if you believe Sportech should be trading in this range, then there isn’t really any room for the share price grow beyond what it’s currently trading. Is there another opportunity to buy low in the future? Since Sportech’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What does the future of Sportech look like?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. With revenues expected to grow by a double-digit 19.49% over the next couple of years, the outlook is positive for Sportech. If the level of expenses is able to be maintained, it looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has already priced in SPO’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 track record of its management team. Have these factors changed since the last time you looked at SPO? 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 SPO, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for SPO, 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.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Sportech. You can find everything you need to know about Sportech in the latest infographic research report. If you are no longer interested in Sportech, you can use our free platform to see my list of over 50 other stocks with a high growth potential.