Should You Investigate Touchstar plc (LON:TST) At UK£1.08?

While Touchstar plc (LON:TST) 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 AIM. 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? Let’s take a look at Touchstar’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Touchstar

What's The Opportunity In Touchstar?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to 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 15.89x is currently trading slightly below its industry peers’ ratio of 18.58x, which means if you buy Touchstar today, you’d be paying a decent price for it. And if you believe that Touchstar should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Is there another opportunity to buy low in the future? Since Touchstar’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of Touchstar look like?

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. However, with a relatively muted revenue growth of 9.7% expected in the upcoming year, short term growth doesn’t seem like a key driver for a buy decision for Touchstar.

What This Means For You

Are you a shareholder? TST’s future growth appears to have been factored into the current share price, with shares trading around industry price multiples. 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 TST? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on TST, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean 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 Touchstar as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Touchstar, and understanding it should be part of your investment process.

If you are no longer interested in Touchstar, 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.