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M.T.I Wireless Edge Ltd. (LON:MWE), is not the largest company out there, but it received a lot of attention from a substantial price increase on the AIM over the last few months. 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 M.T.I Wireless Edge’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Check out our latest analysis for M.T.I Wireless Edge
What is M.T.I Wireless Edge worth?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to 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 M.T.I Wireless Edge’s ratio of 33.39x is trading slightly below its industry peers’ ratio of 37.13x, which means if you buy M.T.I Wireless Edge today, you’d be paying a decent price for it. And if you believe M.T.I Wireless Edge should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since M.T.I Wireless Edge’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
Can we expect growth from M.T.I Wireless Edge?
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. With revenues expected to grow by a double-digit 11% over the next couple of years, the outlook is positive for M.T.I Wireless Edge. If the level of expenses is able to be maintained, it looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? MWE’s optimistic future growth appears to have been factored into the current share price, 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 MWE? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?