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DroneShield Limited (ASX:DRO), might not be a large cap stock, but it saw significant share price movement during recent months on the ASX, rising to highs of AU$1.16 and falling to the lows of AU$0.61. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether DroneShield's current trading price of AU$0.66 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at DroneShield’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for DroneShield
What's The Opportunity In DroneShield?
DroneShield is currently expensive based on our price multiple model, where we look at the company's price-to-earnings ratio in comparison to the industry average. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 77.1x is currently well-above the industry average of 39.28x, meaning that it is trading at a more expensive price relative to its peers. But, is there another opportunity to buy low in the future? Given that DroneShield’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 DroneShield 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. With profit expected to more than double over the next couple of years, the future seems bright for DroneShield. 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? It seems like the market has well and truly priced in DRO’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe DRO 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.