At US$7.03, Is It Time To Put Ribbon Communications Inc. (NASDAQ:RBBN) On Your Watch List?

Ribbon Communications Inc. (NASDAQ:RBBN), is not the largest company out there, but it saw a decent share price growth in the teens level on the NASDAQGS over the last few months. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at Ribbon Communications’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Ribbon Communications

What is Ribbon Communications worth?

Good news, investors! Ribbon Communications is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 13.24x is currently well-below the industry average of 34.97x, meaning that it is trading at a cheaper price relative to its peers. However, given that Ribbon Communications’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Ribbon Communications 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. Though in the case of Ribbon Communications, it is expected to deliver a highly negative earnings growth in the upcoming, 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? Although RBBN is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. I recommend you think about whether you want to increase your portfolio exposure to RBBN, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping tabs on RBBN for some time, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

If you want to dive deeper into Ribbon Communications, you'd also look into what risks it is currently facing. To that end, you should learn about the 4 warning signs we've spotted with Ribbon Communications (including 2 which are a bit unpleasant).

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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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