Is Arotech Corporation (NASDAQ:ARTX) Potentially Undervalued?

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Arotech Corporation (NASDAQ:ARTX), which is in the aerospace & defense business, and is based in United States, received a lot of attention from a substantial price increase on the NASDAQGM 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? Let’s examine Arotech’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Arotech

What is Arotech worth?

According to my valuation model, Arotech seems to be fairly priced at around 17.5% above my intrinsic value, which means if you buy Arotech today, you’d be paying a relatively fair price for it. And if you believe that the stock is really worth $2.97, there’s only an insignificant downside when the price falls to its real value. Is there another opportunity to buy low in the future? Since Arotech’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from Arotech?

NasdaqGM:ARTX Past and Future Earnings, February 21st 2019
NasdaqGM:ARTX Past and Future Earnings, February 21st 2019
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. Though in the case of Arotech, it is expected to deliver a negative earnings growth of -20%, 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? Currently, ARTX 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 the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on ARTX for a while, now may not be the most advantageous 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. 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 ARTX 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 Arotech. You can find everything you need to know about Arotech in the latest infographic research report. If you are no longer interested in Arotech, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Thank you for reading.