CTS Corporation (NYSE:CTS), a electronic company based in United States, saw a decent share price growth in the teens level on the NYSE over the last few months. 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? Today I will analyse the most recent data on CTS’s outlook and valuation to see if the opportunity still exists.
What’s the opportunity in CTS?CTS appears to be overvalued by 45.5% at the moment, based on my discounted cash flow valuation. The stock is currently priced at US$35.75 on the market compared to my intrinsic value of $24.57. This means that the buying opportunity has probably disappeared for now. But, is there another opportunity to buy low in the future? Given that CTS’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 CTS?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’s earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger 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. At this current price, shareholders may be asking a different question – should I 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 an eye on CTS for a while, 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.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on CTS. You can find everything you need to know about CTS in the latest infographic research report. If you are no longer interested in CTS, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.