At S$0.80, Is It Time To Put InnoTek Limited (SGX:M14) On Your Watch List?

InnoTek Limited (SGX:M14), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the SGX over the last few months. As a small cap stock, hardly covered by any analysts, 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? Today I will analyse the most recent data on InnoTek’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for InnoTek

What is InnoTek worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 18% below my intrinsic value, which means if you buy InnoTek today, you’d be paying a fair price for it. And if you believe that the stock is really worth SGD0.98, then there’s not much of an upside to gain from mispricing. What's more, InnoTek’s share price may be more stable over time (relative to the market), as indicated by its low beta.

Can we expect growth from InnoTek?

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. However, with a negative profit growth of -2.4% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for InnoTek. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? M14 seems fairly priced right now, 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 the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on M14 for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which 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 M14 should the price fluctuate below its true value.

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 2 warning signs for InnoTek and you'll want to know about them.

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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. 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.
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