Stock Analysis

At UK£0.72, Is EKF Diagnostics Holdings plc (LON:EKF) Worth Looking At Closely?

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AIM:EKF
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EKF Diagnostics Holdings plc (LON:EKF), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the AIM. 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? Let’s examine EKF Diagnostics Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for EKF Diagnostics Holdings

What's the opportunity in EKF Diagnostics Holdings?

According to my valuation model, the stock is currently overvalued by about 29%, trading at UK£0.72 compared to my intrinsic value of £0.56. Not the best news for investors looking to buy! Another thing to keep in mind is that EKF Diagnostics Holdings’s share price is quite stable relative to the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.

Can we expect growth from EKF Diagnostics Holdings?

earnings-and-revenue-growth
AIM:EKF Earnings and Revenue Growth January 27th 2021

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 EKF Diagnostics Holdings, it is expected to deliver a negative earnings growth of -8.2%, 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? If you believe EKF should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. Given the uncertainty from negative growth in the future, this could be the right time to reduce your total portfolio risk. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on EKF for some time, now may not be the best time to enter into the stock. Its price has risen beyond its true value, on top of a negative future outlook. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Should the price fall in the future, will you be well-informed enough to buy?

If you'd like to know more about EKF Diagnostics Holdings as a business, it's important to be aware of any risks it's facing. For example, we've found that EKF Diagnostics Holdings has 2 warning signs (1 doesn't sit too well with us!) that deserve your attention before going any further with your analysis.

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Valuation is complex, but we're helping make it simple.

Find out whether EKF Diagnostics Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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