Is Now The Time To Look At Buying Sephaku Holdings Limited (JSE:SEP)?

Sephaku Holdings Limited (JSE:SEP), might not be a large cap stock, but it saw significant share price movement during recent months on the JSE, rising to highs of R1.19 and falling to the lows of R1.00. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Sephaku Holdings' current trading price of R1.00 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Sephaku Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Our analysis indicates that SEP is potentially undervalued!

What Is Sephaku Holdings Worth?

Good news, investors! Sephaku Holdings 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 4.75x is currently well-below the industry average of 10.53x, meaning that it is trading at a cheaper price relative to its peers. What’s more interesting is that, Sephaku Holdings’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to move closer to its industry peers, 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.

Can we expect growth from Sephaku Holdings?

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. However, with an expected decline of -16% in revenues over the next year, short term growth isn’t a driver for a buy decision for Sephaku Holdings. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Although SEP is currently trading below the industry PE ratio, the negative outlook does bring on some uncertainty, which equates to higher risk. Consider whether you want to increase your portfolio exposure to SEP, 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 an eye on SEP for a while, 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 Sephaku Holdings, you'd also look into what risks it is currently facing. For instance, we've identified 4 warning signs for Sephaku Holdings (1 is concerning) you should be familiar with.

If you are no longer interested in Sephaku Holdings, 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.