Is S&J Corporation (TSE:5599) Potentially Undervalued?

While S&J Corporation (TSE:5599) might not have the largest market cap around , it saw a significant share price rise of 39% in the past couple of months on the TSE. The company's trading levels have reached its high for the past year, following the recent bounce in the share price. 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 S&J’s outlook and value based on the most recent financial data to see if the opportunity still exists.

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What's The Opportunity In S&J?

S&J appears to be expensive according to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that S&J’s ratio of 27.35x is above its peer average of 16.94x, which suggests the stock is trading at a higher price compared to the IT industry. In addition to this, it seems like S&J’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

Check out our latest analysis for S&J

What kind of growth will S&J generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. S&J's earnings over the next few years are expected to increase by 40%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? 5599’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe 5599 should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on 5599 for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for 5599, which means 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 S&J as a business, it's important to be aware of any risks it's facing. Our analysis shows 2 warning signs for S&J (1 is a bit concerning!) and we strongly recommend you look at these before investing.

If you are no longer interested in S&J, 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.