While Zedge, Inc. (NYSEMKT:ZDGE) 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 tend to present 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 Zedge’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What's the opportunity in Zedge?
Great news for investors – Zedge is still trading at a fairly cheap price. According to my valuation, the intrinsic value for the stock is $19.27, but it is currently trading at US$12.73 on the share market, meaning that there is still an opportunity to buy now. Although, there may be another chance to buy again in the future. This is because Zedge’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 Zedge 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. Zedge's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? Since ZDGE is currently undervalued, it may be a great time to accumulate more of your holdings in the stock. With an optimistic outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current undervaluation.
Are you a potential investor? If you’ve been keeping an eye on ZDGE for a while, now might be the time to make a leap. Its prosperous future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy ZDGE. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed buy.
In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. While conducting our analysis, we found that Zedge has 2 warning signs and it would be unwise to ignore 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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