Ellex Medical Lasers Limited (ASX:ELX), a medical equipment company based in Australia, saw significant share price volatility over the past couple of months on the ASX, rising to the highs of A$1.01 and falling to the lows of A$0.8. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Ellex Medical Lasers’s current trading price of A$0.84 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 Ellex Medical Lasers’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. Check out our latest analysis for Ellex Medical Lasers
Is Ellex Medical Lasers still cheap?
The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-book (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that Ellex Medical Lasers’s ratio of 1.56x is trading slightly below its industry peers’ ratio of 2.48x, which means if you buy Ellex Medical Lasers today, you’d be paying a relatively reasonable price for it. And if you believe Ellex Medical Lasers should be trading in this range, then there isn’t much room for the share price grow beyond what it’s currently trading. Furthermore, Ellex Medical Lasers’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
What kind of growth will Ellex Medical Lasers generate?
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. Ellex Medical Lasers’s earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? ELX’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at ELX? Will you have enough confidence to invest in the company should the price drop below its fair value?