Should You Investigate NexTone Inc. (TSE:7094) At JP¥1,174?

NexTone Inc. (TSE:7094), might not be a large cap stock, but it saw significant share price movement during recent months on the TSE, rising to highs of JP¥1,757 and falling to the lows of JP¥1,138. 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 NexTone's current trading price of JP¥1,174 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 NexTone’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for NexTone

What's The Opportunity In NexTone?

According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. We’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 21.55x is currently trading slightly above its industry peers’ ratio of 20.25x, which means if you buy NexTone today, you’d be paying a relatively sensible price for it. And if you believe that NexTone should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. So, is there another chance to buy low in the future? Given that NexTone’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from NexTone?

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. 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. NexTone's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in 7094’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 financial strength of the company. Have these factors changed since the last time you looked at 7094? 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 7094, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for 7094, 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.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. When we did our research, we found 3 warning signs for NexTone (1 makes us a bit uncomfortable!) that we believe deserve your full attention.

If you are no longer interested in NexTone, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com