Should You Think About Buying Keywords Studios plc (LON:KWS) Now?

While Keywords Studios plc (LON:KWS) might not have the largest market cap around , it received a lot of attention from a substantial price increase on the AIM over the last few months. Shareholders may appreciate the recent price jump, but the company still has a way to go before reaching its yearly highs again. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s take a look at Keywords Studios’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for Keywords Studios

Is Keywords Studios Still Cheap?

The stock seems fairly valued at the moment according to our valuation model. It’s trading around 19% below our intrinsic value, which means if you buy Keywords Studios today, you’d be paying a fair price for it. And if you believe that the stock is really worth £26.62, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Keywords Studios’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Keywords Studios 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. Keywords Studios' 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 already priced in KWS’s positive outlook, with shares trading around its fair value. 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 the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping tabs on KWS, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Keywords Studios at this point in time. For example, Keywords Studios has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

If you are no longer interested in Keywords Studios, 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.