When Should You Buy Eltel AB (publ) (STO:ELTEL)?

While Eltel AB (publ) (STO:ELTEL) might not be the most widely known stock at the moment, it saw a decent share price growth in the teens level on the OM 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? Today I will analyse the most recent data on Eltel’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Eltel

What's the opportunity in Eltel?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 18.59% above my intrinsic value, which means if you buy Eltel today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is SEK18.85, there’s only an insignificant downside when the price falls to its real value. Furthermore, Eltel’s low beta implies that the stock is less volatile than the wider market.

Can we expect growth from Eltel?

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. 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. However, with an expected decline of -2.0% in revenues over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Eltel. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? ELTEL seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on ELTEL for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on ELTEL should the price fluctuate below its true value.

It can be quite valuable to consider what analysts expect for Eltel from their most recent forecasts. At Simply Wall St, we have the analysts estimates which you can view by clicking here.

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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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