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M.T.I Wireless Edge Ltd. (LON:MWE), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the AIM over the last few months. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine M.T.I Wireless Edge’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
View our latest analysis for M.T.I Wireless Edge
Is M.T.I Wireless Edge still cheap?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 18.78x is currently trading slightly below its industry peers’ ratio of 19.67x, which means if you buy M.T.I Wireless Edge today, you’d be paying a decent price for it. And if you believe that M.T.I Wireless Edge should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Is there another opportunity to buy low in the future? Since M.T.I Wireless Edge’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. 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.
Can we expect growth from M.T.I Wireless Edge?
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. M.T.I Wireless Edge's revenue growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has already priced in MWE’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at MWE? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?