When Should You Buy FormFactor, Inc. (NASDAQ:FORM)?

FormFactor, Inc. (NASDAQ:FORM), is not the largest company out there, but it saw a significant share price rise of 43% in the past couple of months on the NASDAQGS. While good news for shareholders, the company has traded much higher in the past year. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at FormFactor’s outlook and value based on the most recent financial data to see if the opportunity still exists.

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What's The Opportunity In FormFactor?

FormFactor appears to be expensive according to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that FormFactor’s ratio of 50.62x is above its peer average of 30.84x, which suggests the stock is trading at a higher price compared to the Semiconductor industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since FormFactor’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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.

See our latest analysis for FormFactor

What does the future of FormFactor look like?

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 relatively muted profit growth of 3.7% expected over the next year, growth doesn’t seem like a key driver for a buy decision for FormFactor, at least in the short term.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in FORM’s outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe FORM should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio 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 FORM for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example - FormFactor has 1 warning sign we think you should be aware of.

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.