Is It Too Late To Consider Buying First Derivatives plc (LON:FDP)?

First Derivatives plc (LON:FDP), 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£33.95 and falling to the lows of UK£26.10. 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 First Derivatives' current trading price of UK£26.50 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 First Derivatives’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 First Derivatives

Is First Derivatives still cheap?

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. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that First Derivatives’s ratio of 50.14x is trading in-line with its industry peers’ ratio, which means if you buy First Derivatives today, you’d be paying a relatively sensible price for it. Furthermore, it seems like First Derivatives’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from First Derivatives?

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. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for First Derivatives, at least in the near future.

What this means for you:

Are you a shareholder? Currently, FDP appears to be trading around industry price multiples, 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 FDP, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on FDP 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. 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 crystallize your views on FDP should the price fluctuate below the industry PE ratio.

If you want to dive deeper into First Derivatives, you'd also look into what risks it is currently facing. When we did our research, we found 4 warning signs for First Derivatives (1 is a bit unpleasant!) 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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