Should You Investigate Alton Sports Co.,Ltd. (KOSDAQ:123750) At ₩6,990?

Alton Sports Co.,Ltd. (KOSDAQ:123750), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the KOSDAQ over the last few months. 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 examine Alton SportsLtd’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Alton SportsLtd

What's the opportunity in Alton SportsLtd?

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 15.84x is currently trading slightly above its industry peers’ ratio of 12.48x, which means if you buy Alton SportsLtd today, you’d be paying a relatively sensible price for it. And if you believe that Alton SportsLtd should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Is there another opportunity to buy low in the future? Since Alton SportsLtd’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from Alton SportsLtd?

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. With revenues expected to grow by a double-digit 30% in the upcoming year, the outlook is positive for Alton SportsLtd. If the level of expenses is able to be maintained, 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 A123750’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 A123750? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on A123750, 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 A123750, 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.

So while earnings quality is important, it's equally important to consider the risks facing Alton SportsLtd at this point in time. For example - Alton SportsLtd has 2 warning signs we think you should be aware of.

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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. 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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