Luna Innovations Incorporated (NASDAQ:LUNA), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the NASDAQCM. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s take a look at Luna Innovations’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What is Luna Innovations worth?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 4.99% above my intrinsic value, which means if you buy Luna Innovations today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is $6.31, there’s only an insignificant downside when the price falls to its real value. Furthermore, Luna Innovations’s low beta implies that the stock is less volatile than the wider market.
What kind of growth will Luna Innovations generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With revenues expected to grow by a double-digit 16% in the upcoming year, the outlook is positive for Luna Innovations. If the level of expenses is able to be maintained, it looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? LUNA’s optimistic future growth appears to have been factored into the current share price, 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 an eye on LUNA, 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 diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
So while earnings quality is important, it's equally important to consider the risks facing Luna Innovations at this point in time. At Simply Wall St, we found 1 warning sign for Luna Innovations 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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