Should You Think About Buying HMS Networks AB (publ) (STO:HMS) Now?

While HMS Networks AB (publ) (STO:HMS) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% in the past couple of months on the OM. 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? Let’s take a look at HMS Networks’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for HMS Networks

What Is HMS Networks Worth?

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 31.65x is currently trading in-line with its industry peers’ ratio, which means if you buy HMS Networks today, you’d be paying a relatively sensible price for it. Although, there may be an opportunity to buy in the future. This is because HMS Networks’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.

What does the future of HMS Networks 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. However, with a negative profit growth of -8.4% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for HMS Networks. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? HMS seems priced close to industry peers right now, 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 HMS, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on HMS for a while, now may not be the most advantageous 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 crystallize your views on HMS should the price fluctuate below the industry PE ratio.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. You'd be interested to know, that we found 1 warning sign for HMS Networks and you'll want to know about it.

If you are no longer interested in HMS Networks, 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.