What Does EKF Diagnostics Holdings plc's (LON:EKF) Share Price Indicate?

While EKF Diagnostics Holdings plc (LON:EKF) 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. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine EKF Diagnostics Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for EKF Diagnostics Holdings

What's The Opportunity In EKF Diagnostics Holdings?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 22.86x is currently trading slightly below its industry peers’ ratio of 23.48x, which means if you buy EKF Diagnostics Holdings today, you’d be paying a reasonable price for it. And if you believe that EKF Diagnostics Holdings should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, EKF Diagnostics Holdings’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

What does the future of EKF Diagnostics Holdings look like?

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 a double-digit 13% over the next couple of years, the outlook is positive for EKF Diagnostics Holdings. 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? EKF’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. 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 EKF? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on EKF, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for EKF, 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.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example - EKF Diagnostics Holdings has 2 warning signs we think you should be aware of.

If you are no longer interested in EKF Diagnostics Holdings, 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.