Northgate plc (LON:NTG), which is in the transportation business, and is based in United Kingdom, received a lot of attention from a substantial price movement on the LSE over the last few months, increasing to £4.05 at one point, and dropping to the lows of £3.54. 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 Northgate’s current trading price of £3.86 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Northgate’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Northgate still cheap?According to my relative valuation model, the stock seems to be currently fairly priced. 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 12.2x is currently trading slightly above its industry peers’ ratio of 11.51x, which means if you buy Northgate today, you’d be paying a relatively fair price for it. And if you believe that Northgate should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. Furthermore, Northgate’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
What does the future of Northgate 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. With profit expected to grow by 54% over the next couple of years, the future seems bright for Northgate. 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? It seems like the market has already priced in NTG’s positive outlook, 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 NTG? Will you have enough conviction to buy should the price fluctuate below the true value?
Are you a potential investor? If you’ve been keeping tabs on NTG, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for NTG, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Northgate. You can find everything you need to know about Northgate in the latest infographic research report. If you are no longer interested in Northgate, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.