At US$3.04, Is Luna Innovations Incorporated (NASDAQ:LUNA) Worth Looking At Closely?

Luna Innovations Incorporated (NASDAQ:LUNA), which is in the electronic business, and is based in United States, saw significant share price volatility over the past couple of months on the NasdaqCM, rising to the highs of $4.12 and falling to the lows of $2.93. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Luna Innovations’s current trading price of $3.04 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 Luna Innovations’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 Luna Innovations

What’s the opportunity in Luna Innovations?

According to my relative valuation model, the stock is currently overvalued. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Luna Innovations’s ratio of 47.61x is above its peer average of 25.85x, which suggests the stock is overvalued compared to the Electronic industry. Furthermore, Luna Innovations’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

What does the future of Luna Innovations look like?

NasdaqCM:LUNA Future Profit October 16th 18
NasdaqCM:LUNA Future Profit October 16th 18
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. Though in the case of Luna Innovations, it is expected to deliver a negative revenue growth of -7.4% over the next couple of years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? If you believe LUNA 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. Given the uncertainty from negative growth in the future, this could be the right time to de-risk your portfolio. 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 LUNA for a while, now may not be the best time to enter into the stock. Price climbed passed its industry peers, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the track record of its management. Should the price fall in the future, will you be well-informed enough to buy?

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Luna Innovations. You can find everything you need to know about Luna Innovations in the latest infographic research report. If you are no longer interested in Luna Innovations, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.