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G8 Education Limited (ASX:GEM), is not the largest company out there, but it saw a decent share price growth in the teens level on the ASX over the last few months. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Today I will analyse the most recent data on G8 Education’s outlook and valuation to see if the opportunity still exists.
View our latest analysis for G8 Education
What's the opportunity in G8 Education?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 3.0% below my intrinsic value, which means if you buy G8 Education today, you’d be paying a fair price for it. And if you believe the company’s true value is A$1.20, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because G8 Education’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.
What does the future of G8 Education look like?
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. G8 Education's earnings over the next few years are expected to increase by 92%, 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 already priced in GEM’s positive outlook, 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 the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping tabs on GEM, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.