Is Now An Opportune Moment To Examine RM plc (LON:RM.)?

While RM plc (LON:RM.) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% in the past couple of months on the LSE. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Today I will analyse the most recent data on RM’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for RM

What is RM worth?

According to my valuation model, RM seems to be fairly priced at around 16% below my intrinsic value, which means if you buy RM today, you’d be paying a fair price for it. And if you believe the company’s true value is £2.78, then there isn’t much room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that RM’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from RM?

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. RM's 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? RM.’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping an eye on RM., 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 further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you want to dive deeper into RM, you'd also look into what risks it is currently facing. For example - RM has 2 warning signs we think you should be aware of.

If you are no longer interested in RM, 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. 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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