Should You Investigate Scicom (MSC) Berhad (KLSE:SCICOM) At RM1.07?

While Scicom (MSC) Berhad (KLSE:SCICOM) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price increase 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 Scicom (MSC) Berhad’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Scicom (MSC) Berhad

Is Scicom (MSC) Berhad still cheap?

According to my 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. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Scicom (MSC) Berhad’s ratio of 16.98x is trading slightly below its industry peers’ ratio of 18.78x, which means if you buy Scicom (MSC) Berhad today, you’d be paying a decent price for it. And if you believe that Scicom (MSC) Berhad should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, Scicom (MSC) Berhad’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.

Can we expect growth from Scicom (MSC) Berhad?

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 a double-digit 10% over the next couple of years, the outlook is positive for Scicom (MSC) 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? It seems like the market has already priced in SCICOM’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 SCICOM? 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 tabs on SCICOM, 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 SCICOM, 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.

So while earnings quality is important, it's equally important to consider the risks facing Scicom (MSC) Berhad at this point in time. While conducting our analysis, we found that Scicom (MSC) Berhad has 2 warning signs and it would be unwise to ignore them.

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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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