What Does StrongPoint ASA's (OB:STRO) Share Price Indicate?

While StrongPoint ASA (OB:STRO) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price increase on the OB 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 StrongPoint’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out the opportunities and risks within the NO Electronic industry.

Is StrongPoint Still Cheap?

StrongPoint appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. 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 StrongPoint’s ratio of 42.19x is above its peer average of 22.86x, which suggests the stock is trading at a higher price compared to the Electronic industry. In addition to this, it seems like StrongPoint’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.

Can we expect growth from StrongPoint?

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. StrongPoint'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? STRO’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 STRO 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 STRO 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 optimistic prospect is encouraging for STRO, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into StrongPoint, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for StrongPoint and you'll want to know about it.

If you are no longer interested in StrongPoint, 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.