Is It Time To Consider Buying InfuSystem Holdings Inc. (NYSEMKT:INFU)?

While InfuSystem Holdings Inc. (NYSEMKT:INFU) might not be the most widely known stock at the moment, it saw a significant share price rise of over 20% in the past couple of months on the AMEX. 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 examine InfuSystem Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for InfuSystem Holdings

Is InfuSystem Holdings still cheap?

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. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that InfuSystem Holdings’s ratio of 23.61x is trading slightly above its industry peers’ ratio of 23.41x, which means if you buy InfuSystem Holdings today, you’d be paying a relatively reasonable price for it. And if you believe that InfuSystem Holdings should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, it seems like InfuSystem Holdings’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from InfuSystem Holdings?

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 -18% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for InfuSystem Holdings. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Currently, INFU appears to be trading around industry price multiples, 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 INFU, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on INFU for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This 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 crystallize your views on INFU should the price fluctuate below the industry PE ratio.

If you want to dive deeper into InfuSystem Holdings, you'd also look into what risks it is currently facing. To that end, you should learn about the 4 warning signs we've spotted with InfuSystem Holdings (including 2 which are concerning).

If you are no longer interested in InfuSystem Holdings, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

If you’re looking to trade InfuSystem Holdings, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.