Is It Time To Consider Buying Proact IT Group AB (publ) (STO:PACT)?

Proact IT Group AB (publ) (STO:PACT), might not be a large cap stock, 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? Today I will analyse the most recent data on Proact IT Group’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Proact IT Group

What's The Opportunity In Proact IT Group?

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 Proact IT Group’s ratio of 14.78x is trading slightly below its industry peers’ ratio of 15.79x, which means if you buy Proact IT Group today, you’d be paying a reasonable price for it. And if you believe that Proact IT Group should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Although, there may be an opportunity to buy in the future. This is because Proact IT Group’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.

Can we expect growth from Proact IT Group?

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. Proact IT Group's earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in PACT’s positive outlook, with shares trading around industry price multiples. 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 PACT? 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 PACT, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for PACT, 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.

It can be quite valuable to consider what analysts expect for Proact IT Group from their most recent forecasts. Luckily, you can check out what analysts are forecasting by clicking here.

If you are no longer interested in Proact IT Group, 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.