Mycronic AB (publ) (STO:MYCR), which is in the electronic business, and is based in Sweden, saw a significant share price rise of over 20% in the past couple of months on the OM. Less-covered, small caps sees 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 Mycronic’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What is Mycronic worth?
The stock seems fairly valued at the moment according to my relative valuation model. 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 21.8x is currently trading slightly below its industry peers’ ratio of 24.26x, which means if you buy Mycronic today, you’d be paying a reasonable price for it. And if you believe Mycronic should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. Although, there may be an opportunity to buy in the future. This is because Mycronic’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 Mycronic?
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. However, with a negative profit growth of -5.0% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Mycronic. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Currently, MYCR appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on MYCR, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on MYCR for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, 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 MYCR should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Mycronic. You can find everything you need to know about Mycronic in the latest infographic research report. If you are no longer interested in Mycronic, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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