KPS AG (ETR:KSC), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the XTRA over the last few months, increasing to €3.84 at one point, and dropping to the lows of €2.17. 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 KPS' current trading price of €2.26 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 KPS’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 KPS
What's The Opportunity In KPS?
Great news for investors – KPS is still trading at a fairly cheap price 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 KPS’s ratio of 11.95x is below its peer average of 19.91x, which indicates the stock is trading at a lower price compared to the IT industry. Although, there may be another chance to buy again in the future. This is because KPS’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What kind of growth will KPS 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. With profit expected to grow by 37% over the next couple of years, the future seems bright for KPS. 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? Since KSC is currently trading below the industry PE ratio, it may be a great time to increase your holdings in the stock. With an optimistic profit outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as financial health to consider, which could explain the current price multiple.