Data#3 Limited (ASX:DTL), a it company based in Australia, received a lot of attention from a substantial price movement on the ASX over the last few months, increasing to A$1.81 at one point, and dropping to the lows of A$1.59. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Data#3’s current trading price of A$1.7 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 Data#3’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. Check out our latest analysis for Data#3
What is Data#3 worth?
According to my relative valuation model, the stock seems to be currently fairly priced. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Data#3’s ratio of 21.16x is trading slightly below its industry peers’ ratio of 24.13x, which means if you buy Data#3 today, you’d be paying a reasonable price for it. And if you believe Data#3 should be trading in this range, then there isn’t much room for the share price grow beyond what it’s currently trading. Furthermore, Data#3’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 Data#3 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. Data#3’s earnings over the next few years are expected to increase by 48.27%, 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? DTL’s optimistic future growth appears to have been factored into the current share price, 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 DTL? Will you have enough confidence to invest in the company should the price drop below its fair value?