Afarak Group Oyj (HLSE:AFAGR), a metals and mining company based in Finland, saw a double-digit share price rise of over 10% in the past couple of months on the HLSE. 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 Afarak Group Oyj’s outlook and valuation to see if the opportunity still exists. Check out our latest analysis for Afarak Group Oyj
Is Afarak Group Oyj still cheap?
Afarak Group Oyj appears to be overvalued according to my relative valuation model. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 53.76x is currently well-above the industry average of 13.15x, meaning that it is trading at a more expensive price relative to its peers. Another thing to keep in mind is that Afarak Group Oyj’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.
What kind of growth will Afarak Group Oyj generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 Afarak Group Oyj, it is expected to deliver a negative revenue growth of -9.46% next year, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? If you believe AFAGR is currently trading above its peers, 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 de-risk your portfolio. 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 tabs on AFAGR for some time, now may not be the best time to enter into the stock. Price climbed passed its industry peers, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the track record of its management. Should the price fall in the future, will you be well-informed enough to buy?