Strax AB (publ) (STO:STRAX), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the OM over the last few months. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today I will analyse the most recent data on Strax’s outlook and valuation to see if the opportunity still exists.
See our latest analysis for Strax
Is Strax still cheap?
Strax 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 Strax’s ratio of 41.42x is above its peer average of 18.46x, which suggests the stock is trading at a higher price compared to the Consumer Durables industry. But, is there another opportunity to buy low in the future? Given that Strax’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Strax look like?
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. Strax's revenue growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? STRAX’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 STRAX 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 STRAX 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 positive outlook is encouraging for STRAX, 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 Strax, you'd also look into what risks it is currently facing. To that end, you should learn about the 3 warning signs we've spotted with Strax (including 1 which makes us a bit uncomfortable).
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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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About OM:STRAX
Strax
Designs, develops, manufactures, and sells mobile accessories worldwide.
Moderate and slightly overvalued.
