XLMedia PLC (LON:XLM), might not be a large cap stock, but it saw significant share price movement during recent months on the AIM, rising to highs of UK£0.29 and falling to the lows of UK£0.21. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether XLMedia's current trading price of UK£0.23 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at XLMedia’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in XLMedia?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 12.93% above my intrinsic value, which means if you buy XLMedia today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is £0.20, there’s only an insignificant downside when the price falls to its real value. Is there another opportunity to buy low in the future? Since XLMedia’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 kind of growth will XLMedia generate?
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. XLMedia's revenue growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? XLM’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. 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 the stock? 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 an eye on XLM, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, 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.
So while earnings quality is important, it's equally important to consider the risks facing XLMedia at this point in time. For instance, we've identified 4 warning signs for XLMedia (1 is concerning) you should be familiar with.
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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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