Should You Investigate FormFactor, Inc. (NASDAQ:FORM) At US$44.78?

While FormFactor, Inc. (NASDAQ:FORM) might not have the largest market cap around , it saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$62.22 and falling to the lows of US$40.90. 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 FormFactor's current trading price of US$44.78 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at FormFactor’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for FormFactor

What's The Opportunity In FormFactor?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’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 28.55x is currently trading slightly above its industry peers’ ratio of 27.29x, which means if you buy FormFactor today, you’d be paying a relatively reasonable price for it. And if you believe FormFactor should be trading in this range, then there isn’t really any room for the share price 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 FormFactor’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.

Can we expect growth from FormFactor?

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. However, with a negative profit growth of -7.5% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for FormFactor. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? FORM seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on FORM, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on FORM for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, 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 FORM should the price fluctuate below the industry PE ratio.

If you want to dive deeper into FormFactor, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 2 warning signs for FormFactor and you'll want to know about them.

If you are no longer interested in FormFactor, 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.