1Spatial Plc (AIM:SPA), a it services company based in United Kingdom, saw a decent share price growth in the teens level on the AIM over the last few months. Less covered, small-stocks like SPA sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could SPA still be trading at a low price relative to its actual value? Let’s take a look at SPA’s outlook and value based on the most recent financial data to see if the opportunity still exists. Check out our latest analysis for 1Spatial
What is SPA worth?
According to my relative valuation model, SPA seems to be currently fairly priced. I’ve used the price-to-book ratio in this instance because there’s not enough visibility to forecast its cash flows, and its earnings doesn’t seem to reflect its true value. The stock’s ratio of 3.3x is currently trading slightly above its industry peers’ ratio of 2.8x, which means if you buy SPA today, you’d be paying a relatively reasonable price for it. And if you believe SPA should be trading in this range, then there isn’t really any room for the share price grow beyond what it’s currently trading. Furthermore, it seems like SPA’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s fairly valued. This is because SPA’s stock is less volatile than the wider market given its low beta.
Can we expect growth from SPA?
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, SPA’s earnings are expected to increase by 91.06%, 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? SPA’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 SPA? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping an eye on SPA, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for SPA, 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.