Allied Motion Technologies Inc. (NASDAQ:AMOT), might not be a large cap stock, but it led the NASDAQGM gainers with a relatively large price hike in the past couple of weeks. 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 Allied Motion Technologies’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What is Allied Motion Technologies worth?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to 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 25.03x is currently trading slightly below its industry peers’ ratio of 28.38x, which means if you buy Allied Motion Technologies today, you’d be paying a decent price for it. And if you believe Allied Motion Technologies should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Although, there may be an opportunity to buy in the future. This is because Allied Motion Technologies’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 kind of growth will Allied Motion Technologies generate?
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 relatively muted profit growth of 7.6% expected over the next year, growth doesn’t seem like a key driver for a buy decision for Allied Motion Technologies, at least in the short term.
What this means for you:
Are you a shareholder? It seems like the market has already priced in AMOT’s growth 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 AMOT? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?
Are you a potential investor? If you’ve been keeping an eye on AMOT, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.
So while earnings quality is important, it's equally important to consider the risks facing Allied Motion Technologies at this point in time. For example, Allied Motion Technologies has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.
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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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