Is There Now An Opportunity In SDI Group plc (LON:SDI)?
While SDI Group plc (LON:SDI) 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 tend to present 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? Today I will analyse the most recent data on SDI Group’s outlook and valuation to see if the opportunity still exists.
Check out our latest analysis for SDI Group
Is SDI Group still cheap?
The stock is currently trading at UK£0.88 on the share market, which means it is overvalued by 27% compared to my intrinsic value of £0.69. This means that the opportunity to buy SDI Group at a good price has disappeared! But, is there another opportunity to buy low in the future? Given that SDI Group’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will SDI Group generate?
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 profit expected to grow by 27% over the next couple of years, the future seems bright for SDI Group. 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? It seems like the market has well and truly priced in SDI’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe SDI 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. 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 an eye on SDI for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for SDI, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
So while earnings quality is important, it's equally important to consider the risks facing SDI Group at this point in time. You'd be interested to know, that we found 2 warning signs for SDI Group and you'll want to know about them.
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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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About AIM:SDI
SDI Group
Through its subsidiaries, designs and manufactures scientific and technology products based on digital imaging and sensing and control applications worldwide.
Adequate balance sheet with acceptable track record.