Clearfield, Inc. (NASDAQ:CLFD), is not the largest company out there, but it led the NASDAQGM 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 examine Clearfield’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
See our latest analysis for Clearfield
What is Clearfield worth?
According to my 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. 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 Clearfield’s ratio of 39.77x is trading slightly above its industry peers’ ratio of 34.95x, which means if you buy Clearfield today, you’d be paying a relatively reasonable price for it. And if you believe that Clearfield should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, Clearfield’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.
What kind of growth will Clearfield 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. 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. In the upcoming year, Clearfield's earnings are expected to increase by 25%, 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 CLFD’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 CLFD? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?