Is There Now An Opportunity In Kape Technologies PLC (LON:KAPE)?

Kape Technologies PLC (LON:KAPE), is not the largest company out there, but it received a lot of attention from a substantial price movement on the AIM over the last few months, increasing to UK£3.77 at one point, and dropping to the lows of UK£2.78. 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 Kape Technologies' current trading price of UK£2.80 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 Kape Technologies’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 Kape Technologies

What's the opportunity in Kape Technologies?

Kape Technologies appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and 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 49.7x is currently well-above the industry average of 41.71x, meaning that it is trading at a more expensive price relative to its peers. Another thing to keep in mind is that Kape Technologies’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.

What kind of growth will Kape Technologies generate?

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. 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. Kape Technologies' earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in KAPE’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe KAPE should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on KAPE for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for KAPE, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you'd like to know more about Kape Technologies as a business, it's important to be aware of any risks it's facing. For instance, we've identified 2 warning signs for Kape Technologies (1 is concerning) you should be familiar with.

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

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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.