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While RF Industries, Ltd. (NASDAQ:RFIL) might not have the largest market cap around , it led the NASDAQGM gainers with a relatively large price hike in the past couple of weeks. The recent share price gains has brought the company back closer to its yearly peak. 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 RF Industries’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
See our latest analysis for RF Industries
Is RF Industries Still Cheap?
According to our valuation model, RF Industries seems to be fairly priced at around 3.00% above our intrinsic value, which means if you buy RF Industries today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is $4.17, there’s only an insignificant downside when the price falls to its real value. Furthermore, RF Industries’s low beta implies that the stock is less volatile than the wider market.
What kind of growth will RF Industries generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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, RF Industries' earnings are expected to increase by 65%, 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 RFIL’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? 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 RFIL, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, 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.
So while earnings quality is important, it's equally important to consider the risks facing RF Industries at this point in time. Case in point: We've spotted 1 warning sign for RF Industries you should be aware of.