In This Article:
RealDolmen NV (ENXTBR:REA), a software company based in Belgium, saw a significant share price rise of over 20% in the past couple of months on the ENXTBR. 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? Today I will analyse the most recent data on RealDolmen’s outlook and valuation to see if the opportunity still exists. View our latest analysis for RealDolmen
Is RealDolmen still cheap?
RealDolmen appears to be overvalued by 23% at the moment, based on my discounted cash flow valuation. The stock is currently priced at €36.80 on the market compared to my intrinsic value of €29.87. This means that the buying opportunity has probably disappeared for now. Another thing to keep in mind is that RealDolmen’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.
Can we expect growth from RealDolmen?
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. However, with a negative profit growth of -1.08% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for RealDolmen. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? If you believe REA 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. Given the risk from a negative growth outlook, this could be the right time to reduce your total portfolio risk. 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 REA for a while, now may not be the best time to enter into the stock. Price climbed passed its true value, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Should the price fall in the future, will you be well-informed enough to buy?