Stock Analysis

Is Now An Opportune Moment To Examine Sonata Software Limited (NSE:SONATSOFTW)?

NSEI:SONATSOFTW
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Sonata Software Limited (NSE:SONATSOFTW), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the NSEI. As a well-established company, which tends to be well-covered by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at Sonata Software’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Sonata Software

What Is Sonata Software Worth?

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 40.35x is currently trading in-line with its industry peers’ ratio, which means if you buy Sonata Software today, you’d be paying a relatively sensible price for it. Furthermore, Sonata Software’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 kind of growth will Sonata Software generate?

earnings-and-revenue-growth
NSEI:SONATSOFTW Earnings and Revenue Growth November 21st 2023

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 95% over the next couple of years, the future seems bright for Sonata Software. 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 SONATSOFTW’s positive outlook, 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 SONATSOFTW? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on SONATSOFTW, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for SONATSOFTW, 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 Sonata Software, you'd also look into what risks it is currently facing. At Simply Wall St, we found 2 warning signs for Sonata Software and we think they deserve your attention.

If you are no longer interested in Sonata Software, 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.