At US$16.05, Is It Time To Put Magic Software Enterprises Ltd. (NASDAQ:MGIC) On Your Watch List?

Magic Software Enterprises Ltd. (NASDAQ:MGIC), is not the largest company out there, but it received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$17.92 at one point, and dropping to the lows of US$14.64. 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 Magic Software Enterprises' current trading price of US$16.05 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 Magic Software Enterprises’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Magic Software Enterprises

What's the opportunity in Magic Software Enterprises?

According to my valuation model, Magic Software Enterprises seems to be fairly priced at around 16% below my intrinsic value, which means if you buy Magic Software Enterprises today, you’d be paying a fair price for it. And if you believe the company’s true value is $19.22, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Magic Software Enterprises’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 does the future of Magic Software Enterprises 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. Magic Software Enterprises' earnings over the next few years are expected to increase by 59%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has already priced in MGIC’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping tabs on MGIC, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you want to dive deeper into Magic Software Enterprises, you'd also look into what risks it is currently facing. At Simply Wall St, we found 1 warning sign for Magic Software Enterprises and we think they deserve your attention.

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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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