When Should You Buy Purple Innovation, Inc. (NASDAQ:PRPL)?

Purple Innovation, Inc. (NASDAQ:PRPL), might not be a large cap stock, but it saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$6.02 and falling to the lows of US$3.02. 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 Purple Innovation's current trading price of US$3.11 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 Purple Innovation’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 Purple Innovation

What's The Opportunity In Purple Innovation?

Purple Innovation appears to be overvalued by 25% at the moment, based on my discounted cash flow valuation. The stock is currently priced at US$3.11 on the market compared to my intrinsic value of $2.48. This means that the opportunity to buy Purple Innovation at a good price has disappeared! But, is there another opportunity to buy low in the future? Given that Purple Innovation’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 kind of growth will Purple Innovation 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. 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. With profit expected to grow by 85% over the next couple of years, the future seems bright for Purple Innovation. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in PRPL’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe PRPL should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. 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 an eye on PRPL for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for PRPL, which means 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 Purple Innovation at this point in time. You'd be interested to know, that we found 3 warning signs for Purple Innovation and you'll want to know about them.

If you are no longer interested in Purple Innovation, 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.