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While CML Microsystems plc (LON:CML) might not have the largest market cap around , it led the AIM gainers with a relatively large price hike in the past couple of weeks. While good news for shareholders, the company has traded much higher in the past year. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine CML Microsystems’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Check out our latest analysis for CML Microsystems
What's The Opportunity In CML Microsystems?
According to our 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, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that CML Microsystems’s ratio of 13.14x is trading slightly below its industry peers’ ratio of 15.79x, which means if you buy CML Microsystems today, you’d be paying a reasonable price for it. And if you believe CML Microsystems 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. Furthermore, CML Microsystems’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 does the future of CML Microsystems look like?
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. 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 revenues expected to grow by a double-digit 11% in the upcoming year, the outlook is positive for CML Microsystems. 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? CML’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 track record of its management team. Have these factors changed since the last time you looked at CML? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?