Why Development Works Food Co. Ltd (TADAWUL:9501) Could Be Worth Watching

While Development Works Food Co. Ltd (TADAWUL:9501) might not be the most widely known stock at the moment, it saw a decent share price growth in the teens level on the SASE 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 Development Works Food’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Development Works Food

What's the opportunity in Development Works Food?

According to my valuation model, Development Works Food seems to be fairly priced at around 18% below my intrinsic value, which means if you buy Development Works Food today, you’d be paying a fair price for it. And if you believe the company’s true value is SAR203.18, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Development Works Food’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Development Works Food generate?

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% over the next couple of years, the outlook is positive for Development Works Food. 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 9501’s positive outlook, 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 an eye on 9501, 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 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 Development Works Food as a business, it's important to be aware of any risks it's facing. Be aware that Development Works Food is showing 3 warning signs in our investment analysis and 1 of those is significant...

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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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