Is It Time To Consider Buying Ribbon Communications Inc. (NASDAQ:RBBN)?

While Ribbon Communications Inc. (NASDAQ:RBBN) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price increase 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.

Check out our latest analysis for Ribbon Communications

Is Ribbon Communications still cheap?

Ribbon Communications appears to be overvalued by 29% at the moment, based on my discounted cash flow valuation. The stock is currently priced at US$3.45 on the market compared to my intrinsic value of $2.67. This means that the buying opportunity has probably disappeared for now. But, is there another opportunity to buy low in the future? 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.

Can we expect growth from Ribbon Communications?

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 Ribbon Communications, it is expected to deliver a relatively unexciting top-line growth of 6.3% in the next few years, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.

What this means for you:

Are you a shareholder? RBBN’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 RBBN 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 RBBN for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

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. For instance, we've identified 2 warning signs for Ribbon Communications (1 is potentially serious) you should be familiar with.

If you are no longer interested in Ribbon Communications, 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.