Stock Analysis

What Is Tracsis plc's (LON:TRCS) Share Price Doing?

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AIM:TRCS
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While Tracsis plc (LON:TRCS) might not be the most widely known stock at the moment, it led the AIM gainers with a relatively large price hike in the past couple of weeks. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today I will analyse the most recent data on Tracsis’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Tracsis

Is Tracsis still cheap?

Tracsis is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison 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 Tracsis’s ratio of 63.33x is above its peer average of 39.27x, which suggests the stock is trading at a higher price compared to the Software industry. Another thing to keep in mind is that Tracsis’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 Tracsis generate?

earnings-and-revenue-growth
AIM:TRCS Earnings and Revenue Growth December 3rd 2020

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. With profit expected to more than double over the next couple of years, the future seems bright for Tracsis. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? TRCS’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe TRCS 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 TRCS 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 TRCS, 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 Tracsis as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Tracsis has 1 warning sign and it would be unwise to ignore this.

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