At US$42.78, Is It Time To Put CTS Corporation (NYSE:CTS) On Your Watch List?

CTS Corporation (NYSE:CTS), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the NYSE. 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 examine CTS’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for CTS

What Is CTS Worth?

CTS appears to be overvalued by 32% at the moment, based on my discounted cash flow valuation. The stock is currently priced at US$42.78 on the market compared to my intrinsic value of $32.30. This means that the opportunity to buy CTS at a good price has disappeared! In addition to this, it seems like CTS’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

What does the future of CTS 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. CTS' revenue growth are expected to be in the teens in the upcoming year, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in CTS’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe CTS 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 CTS 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 optimistic prospect is encouraging for CTS, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into CTS, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with CTS, and understanding it should be part of your investment process.

If you are no longer interested in CTS, 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.