Is There Now An Opportunity In OSI Systems, Inc. (NASDAQ:OSIS)?

OSI Systems, Inc. (NASDAQ:OSIS), is not the largest company out there, but it received a lot of attention from a substantial price increase on the NASDAQGS over the last few months. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s take a look at OSI Systems’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for OSI Systems

Is OSI Systems Still Cheap?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that OSI Systems’s ratio of 16.57x is trading slightly below its industry peers’ ratio of 17.51x, which means if you buy OSI Systems today, you’d be paying a reasonable price for it. And if you believe OSI Systems should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, it seems like OSI Systems’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

What does the future of OSI Systems look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 negative profit growth of -4.8% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for OSI Systems. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? OSIS seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on OSIS, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on OSIS for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystallize your views on OSIS should the price fluctuate below the industry PE ratio.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Every company has risks, and we've spotted 3 warning signs for OSI Systems (of which 1 is significant!) you should know about.

If you are no longer interested in OSI Systems, 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.