Is It Too Late To Consider Buying Cerillion Plc (LON:CER)?

While Cerillion Plc (LON:CER) might not have the largest market cap around , it saw significant share price movement during recent months on the AIM, rising to highs of UK£19.20 and falling to the lows of UK£15.80. 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 Cerillion's current trading price of UK£15.80 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 Cerillion’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Cerillion

What's The Opportunity In Cerillion?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’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 30.59x is currently trading slightly above its industry peers’ ratio of 30.42x, which means if you buy Cerillion today, you’d be paying a relatively reasonable price for it. And if you believe that Cerillion should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, Cerillion’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 kind of growth will Cerillion 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. Cerillion's earnings over the next few years are expected to increase by 28%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in CER’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at CER? 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 tabs on CER, 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 CER, 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.

If you'd like to know more about Cerillion as a business, it's important to be aware of any risks it's facing. For example - Cerillion has 1 warning sign we think you should be aware of.

If you are no longer interested in Cerillion, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.