While Midwich Group Plc (LON:MIDW) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% in the past couple of months on the AIM. As a small cap stock, which tends to lack high analyst coverage, 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 Midwich Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Midwich Group

Is Midwich Group still cheap?

Midwich Group appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Midwich Group’s ratio of 67.12x is above its peer average of 46.45x, which suggests the stock is trading at a higher price compared to the Electronic industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Midwich Group’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of Midwich Group look like?

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. In Midwich Group's case, its earnings over the next year are expected to double, indicating an incredibly optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in MIDW’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe MIDW should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.