Is There Now An Opportunity In Gear4music (Holdings) plc (LON:G4M)?

While Gear4music (Holdings) plc (LON:G4M) 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. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s take a look at Gear4music (Holdings)’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Gear4music (Holdings)

What is Gear4music (Holdings) worth?

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 19.08x is currently trading in-line with its industry peers’ ratio, which means if you buy Gear4music (Holdings) today, you’d be paying a relatively reasonable price for it. Furthermore, Gear4music (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.

Can we expect growth from Gear4music (Holdings)?

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. However, with an extremely negative double-digit change in profit expected next year, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Gear4music (Holdings), at least in the near future.

What this means for you:

Are you a shareholder? G4M seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on G4M, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on G4M for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, 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 G4M should the price fluctuate below the industry PE ratio.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. When we did our research, we found 3 warning signs for Gear4music (Holdings) (1 shouldn't be ignored!) that we believe deserve your full attention.

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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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