Vermillion Inc (NASDAQ:VRML), a medical equipment company based in United States, saw significant share price volatility over the past couple of months on the NasdaqCM, rising to the highs of $1.58 and falling to the lows of $0.99. 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 Vermillion’s current trading price of $1 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 Vermillion’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. View our latest analysis for Vermillion
What’s the opportunity in Vermillion?
Vermillion appears to be overvalued according to my relative valuation model. In this instance, I’ve used price-to-book ratio (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 Vermillion’s ratio of 48.46x is above its peer average of 4.23x, which suggests the stock is overvalued compared to the Medical Equipment industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since Vermillion’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
Can we expect growth from Vermillion?
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. Vermillion’s earnings over the next few years are expected to increase by 33.33%, indicating a highly optimistic future ahead. This should lead to more 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 VRML’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 VRML 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.