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Fabasoft AG (ETR:FAA), which is in the software business, and is based in Austria, led the XTRA gainers with a relatively large price hike in the past couple of weeks. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at Fabasoft’s outlook and value based on the most recent financial data to see if the opportunity still exists.
See our latest analysis for Fabasoft
What is Fabasoft worth?
The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Fabasoft’s ratio of 35.43x is trading slightly above its industry peers’ ratio of 33.93x, which means if you buy Fabasoft today, you’d be paying a relatively reasonable price for it. And if you believe that Fabasoft should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because Fabasoft’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
Can we expect growth from Fabasoft?
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. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Though in the case of Fabasoft, it is expected to deliver a relatively unexciting earnings growth of 8.7%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.
What this means for you:
Are you a shareholder? FAA’s 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 financial strength of the company. Have these factors changed since the last time you looked at FAA? Will you have enough conviction to buy should the price fluctuate below the true value?