GAN plc (AIM:GAN), a hotels, restaurants and leisure company based in United Kingdom, led the AIM 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 GAN’s outlook and value based on the most recent financial data to see if the opportunity still exists. See our latest analysis for GAN
What’s the opportunity in GAN?
According to my relative valuation model, GAN seems to be currently fairly priced. In this instance, I’ve used the price-to-book (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that GAN’s ratio of 2.9x is trading slightly above its industry peers’ ratio of 1.8x, which means if you buy GAN today, you’d be paying a relatively reasonable price for it. And if you believe that GAN should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. In addition to this, it seems like GAN’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because GAN’s stock is less volatile than the wider market given its low beta.
What kind of growth will GAN generate?
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 GAN future expectations. With revenues expected to grow by 44.04% over the next couple of years, the future seems bright for GAN. If the level of expenses is able to be maintained, it looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? GAN’s optimistic 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 GAN? 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 GAN, 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 GAN, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.