RingCentral Inc (NYSE:RNG), a software company based in United States, saw a significant share price rise of over 20% in the past couple of months on the NYSE. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Today I will analyse the most recent data on RingCentral’s outlook and valuation to see if the opportunity still exists. Check out our latest analysis for RingCentral
What’s the opportunity in RingCentral?RingCentral appears to be overvalued according to my relative valuation model. In this instance, I’ve used price-to-book ratio (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that RingCentral’s ratio of 22.54x is above its peer average of 3.63x, which suggests the stock is overvalued compared to the Software industry. In addition to this, it seems like RingCentral’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.
What kind of growth will RingCentral 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. 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 0.66% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for RingCentral, at least in the short term.
What this means for you:
Are you a shareholder? RNG’s future growth appears to have been factored into the current share price, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe RNG should trade below its current price, selling high and buying it back up again when its price falls towards its real value 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 tabs on RNG for some time, 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.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on RingCentral. You can find everything you need to know about RingCentral in the latest infographic research report. If you are no longer interested in RingCentral, you can use our free platform to see my list of over 50 other stocks with a high growth potential.