Why Gamma Communications plc (LON:GAMA) Could Be Worth Watching

Gamma Communications plc (LON:GAMA), might not be a large cap stock, but it saw significant share price movement during recent months on the AIM, rising to highs of UK£23.35 and falling to the lows of UK£17.90. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Gamma Communications' current trading price of UK£18.02 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Gamma Communications’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Gamma Communications

Is Gamma Communications still cheap?

Good news, investors! Gamma Communications is still a bargain right now. According to my valuation, the intrinsic value for the stock is £24.69, but it is currently trading at UK£18.02 on the share market, meaning that there is still an opportunity to buy now. Gamma Communications’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

What does the future of Gamma Communications look like?

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. However, with a negative profit growth of -10% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Gamma Communications. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Although GAMA is currently undervalued, the adverse prospect of negative growth brings about some degree of risk. I recommend you think about whether you want to increase your portfolio exposure to GAMA, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping tabs on GAMA for some time, but hesitant on making the leap, I recommend you research further into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. You'd be interested to know, that we found 2 warning signs for Gamma Communications and you'll want to know about them.

If you are no longer interested in Gamma Communications, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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.

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