Is K-Fast Holding AB (publ) (STO:KFAST B) Potentially Undervalued?

K-Fast Holding AB (publ) (STO:KFAST B), is not the largest company out there, but it led the OM gainers with a relatively large price hike in the past couple of weeks. 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? Let’s take a look at K-Fast Holding’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for K-Fast Holding

Is K-Fast Holding still cheap?

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. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 4.4x is currently trading slightly above its industry peers’ ratio of 4.32x, which means if you buy K-Fast Holding today, you’d be paying a relatively reasonable price for it. And if you believe that K-Fast Holding should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Is there another opportunity to buy low in the future? Since K-Fast Holding’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 kind of growth will K-Fast Holding generate?

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. Though in the case of K-Fast Holding, it is expected to deliver a negative earnings growth of -5.9%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? Currently, KFAST B appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to de-risk 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 KFAST B, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on KFAST B for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, 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 gel your views on KFAST B should the price fluctuate below the industry PE ratio.

If you'd like to know more about K-Fast Holding as a business, it's important to be aware of any risks it's facing. Be aware that K-Fast Holding is showing 3 warning signs in our investment analysis and 1 of those makes us a bit uncomfortable...

If you are no longer interested in K-Fast Holding, 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.