Frontier Developments plc (LON:FDEV), which is in the entertainment business, and is based in United Kingdom, received a lot of attention from a substantial price movement on the AIM over the last few months, increasing to £13.85 at one point, and dropping to the lows of £7.4. 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 Frontier Developments’s current trading price of £7.66 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 Frontier Developments’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 Frontier Developments

Is Frontier Developments still cheap?

Frontier Developments appears to be overvalued according to my relative valuation model. 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 Frontier Developments’s ratio of 79.97x is above its peer average of 25.39x, which suggests the stock is overvalued compared to the Entertainment industry. But, is there another opportunity to buy low in the future? Since Frontier Developments’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of Frontier Developments 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. 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. Frontier Developments’s earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in FDEV’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe FDEV should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on FDEV for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for FDEV, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Frontier Developments. You can find everything you need to know about Frontier Developments in the latest infographic research report. If you are no longer interested in Frontier Developments, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.