Mercia Technologies PLC (AIM:MERC), a capital markets company based in United Kingdom, received a lot of attention from a substantial price movement on the AIM in the over the last few months, increasing to £0.37 at one point, and dropping to the lows of £0.31. 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 MERC's current trading price of £0.33 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 MERC’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. See our latest analysis for MERC
Is MERC still cheap?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 2% below my intrinsic value, which means if you buy MERC today, you’d be paying a fair price for it. And if you believe MERC’s true value is £0.34, then there isn’t much room for the share price grow beyond what it’s currently trading. Furthermore, it seems like MERC’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s fairly valued. This is because MERC’s stock is less volatile than the wider market given its low beta.
What kind of growth will MERC generate?
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 MERC future expectations. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for MERC, at least in the near future.
What this means for you:
Are you a shareholder? Currently, MERC appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on MERC, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on MERC for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on MERC should the price fluctuate below its true value.