Realm Therapeutics Plc (AIM:RLM), a pharmaceuticals company based in United States, saw significant share price volatility over the past couple of months on the AIM, rising to the highs of £0.48 and falling to the lows of £0.34. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Realm Therapeutics’s current trading price of £0.34 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 Realm Therapeutics’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. See our latest analysis for Realm Therapeutics
What is Realm Therapeutics worth?The stock seems fairly valued at the moment according to my relative valuation model. I’ve used the price-to-book ratio in this instance because there’s not enough visibility to forecast its cash flows, and its earnings doesn’t seem to reflect its true value. The stock’s ratio of 1.54x is currently trading slightly below its industry peers’ ratio of 2.28x, which means if you buy Realm Therapeutics today, you’d be paying a relatively reasonable price for it. And if you believe Realm Therapeutics should be trading in this range, then there isn’t much room for the share price grow beyond what it’s currently trading. In addition to this, it seems like Realm Therapeutics’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.
What does the future of Realm Therapeutics look like?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 Realm Therapeutics, it is expected to deliver a negative revenue growth of -12.86% over the next couple of years, 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? RLM seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on RLM, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on RLM for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on RLM should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Realm Therapeutics. You can find everything you need to know about Realm Therapeutics in the latest infographic research report. If you are no longer interested in Realm Therapeutics, you can use our free platform to see my list of over 50 other stocks with a high growth potential.