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While AVJennings Limited (ASX:AVJ) might not have the largest market cap around , it saw a decent share price growth of 19% on the ASX over the last few months. Shareholders may appreciate the recent price jump, but the company still has a way to go before reaching its yearly highs again. 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 examine AVJennings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Check out our latest analysis for AVJennings
What's The Opportunity In AVJennings?
According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. We’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 20.13x is currently trading slightly below its industry peers’ ratio of 23.54x, which means if you buy AVJennings today, you’d be paying a decent price for it. And if you believe that AVJennings should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, AVJennings’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.
Can we expect growth from AVJennings?
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. With revenues expected to grow by 41% over the next couple of years, the future seems bright for AVJennings. If the level of expenses is able to be maintained, it looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What This Means For You
Are you a shareholder? It seems like the market has already priced in AVJ’s positive outlook, with shares trading around industry price multiples. 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 AVJ? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?