Appen Limited (ASX:APX), a it services company based in Australia, saw a significant share price rise of over 20% in the past couple of months on the ASX. As a small cap stock, which tends to lack high analyst coverage, 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 APX’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. Check out our latest analysis for Appen
Is APX still cheap?
APX appears to be overvalued by 34% at the moment, based on my discounted cash flow valuation. The stock is currently priced at A$5.79 on the market compared to my intrinsic value of A$4.32. Not the best news for investors looking to buy! Furthermore, APX’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
What does the future of APX 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 APX future expectations. With profit expected to grow by 64.73% over the next couple of years, the future seems bright for APX. It looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in APX’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 APX 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 an eye on APX for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook is encouraging for APX, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.