When Should You Buy Filtronic plc (LON:FTC)?

While Filtronic plc (LON:FTC) might not be the most widely known stock at the moment, it saw a significant share price rise of over 20% in the past couple of months on the AIM. 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? Let’s take a look at Filtronic’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Filtronic

What's The Opportunity In Filtronic?

Filtronic 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 Filtronic’s ratio of 42.91x is above its peer average of 22.34x, which suggests the stock is trading at a higher price compared to the Communications industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Filtronic’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Filtronic?

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. In the upcoming year, Filtronic's earnings are expected to increase by 45%, indicating a highly optimistic future ahead. This should lead to more robust 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 FTC’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 FTC 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 tabs on FTC for some time, 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 FTC, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Filtronic, you'd also look into what risks it is currently facing. To that end, you should learn about the 4 warning signs we've spotted with Filtronic (including 1 which doesn't sit too well with us).

If you are no longer interested in Filtronic, 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.