At NZ$0.60, Is It Time To Put Rakon Limited (NZSE:RAK) On Your Watch List?

Rakon Limited (NZSE:RAK), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the NZSE over the last few months, increasing to NZ$0.80 at one point, and dropping to the lows of NZ$0.60. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Rakon's current trading price of NZ$0.60 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Rakon’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Rakon

Is Rakon Still Cheap?

According to our valuation model, Rakon seems to be fairly priced at around 11% below our intrinsic value, which means if you buy Rakon today, you’d be paying a reasonable price for it. And if you believe the company’s true value is NZ$0.67, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that Rakon’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Rakon 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. In Rakon's case, its revenues over the next few years are expected to grow by 51%, indicating a highly optimistic future ahead. If expense does not increase by the same rate, or higher, this top line growth should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? RAK’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 conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping tabs on RAK, now may not be the most optimal 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 further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you'd like to know more about Rakon as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for Rakon you should be aware of.

If you are no longer interested in Rakon, 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.