Is LeoVegas AB (publ) (STO:LEO) Potentially Undervalued?

LeoVegas AB (publ) (STO:LEO), is not the largest company out there, but it received a lot of attention from a substantial price increase on the OM over the last few months. As a small cap stock, which tends to lack high analyst coverage, 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 LeoVegas’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for LeoVegas

What's the opportunity in LeoVegas?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 LeoVegas’s ratio of 20.09x is trading slightly below its industry peers’ ratio of 21.31x, which means if you buy LeoVegas today, you’d be paying a reasonable price for it. And if you believe LeoVegas should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since LeoVegas’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of LeoVegas look like?

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. LeoVegas' 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? LEO’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at LEO? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on LEO, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for LEO, 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 LeoVegas as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that LeoVegas has 3 warning signs and it would be unwise to ignore them.

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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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