When Should You Buy HMS Networks AB (publ) (STO:HMS)?

While HMS Networks AB (publ) (STO:HMS) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the OM, rising to highs of kr541 and falling to the lows of kr398. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether HMS Networks' current trading price of kr425 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at HMS Networks’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for HMS Networks

What's The Opportunity In HMS Networks?

HMS Networks 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. 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 34.53x is currently well-above the industry average of 23.11x, meaning that it is trading at a more expensive price relative to its peers. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that HMS Networks’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 HMS Networks look like?

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. 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. Though in the case of HMS Networks, it is expected to deliver a negative earnings growth of -4.0%, 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? If you believe HMS is currently trading above its peers, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. Given the risk from a negative growth outlook, this could be the right time to reduce your total portfolio risk. 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 HMS for some time, now may not be the best time to enter into the stock. Its price has risen beyond its industry peers, on top of a negative future outlook. However, there are also other important factors which we haven’t considered today, such as the track record of its management. Should the price fall in the future, will you be well-informed enough to buy?

So while earnings quality is important, it's equally important to consider the risks facing HMS Networks at this point in time. 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.