While Pestech International Berhad (KLSE:PESTECH) might not be the most widely known stock at the moment, it saw a decent share price growth in the teens level on the KLSE 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 take a look at Pestech International Berhad’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What's the opportunity in Pestech International Berhad?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 13% below my intrinsic value, which means if you buy Pestech International Berhad today, you’d be paying a fair price for it. And if you believe that the stock is really worth MYR1.17, then there isn’t much room for the share price grow beyond what it’s currently trading. Furthermore, Pestech International Berhad’s low beta implies that the stock is less volatile than the wider market.
What kind of growth will Pestech International Berhad generate?
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 56% over the next couple of years, the future seems bright for Pestech International Berhad. 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? PESTECH’s optimistic future growth appears to have been factored into the current share price, 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 the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on PESTECH, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, 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.
Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. In terms of investment risks, we've identified 1 warning sign with Pestech International Berhad, and understanding this should be part of your investment process.
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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.
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