Infomedia Ltd (ASX:IFM), a software company based in Australia, saw significant share price volatility over the past couple of months on the ASX, rising to the highs of A$0.83 and falling to the lows of A$0.74. 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 IFM’s current trading price of A$0.78 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 IFM’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 IFM
What’s the opportunity in IFM?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 18% below my intrinsic value, which means if you buy IFM today, you’d be paying a reasonable price for it. And if you believe IFM’s true value is A$0.95, then there isn’t much room for the share price grow beyond what it’s currently trading. Furthermore, IFM’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 IFM to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
What does the future of IFM 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. IFM’s earnings over the next few years are expected to increase by 50.13%, 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? IFM’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 financial strength of the company. Have these factors changed since the last time you looked at IFM? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping an eye on IFM, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for IFM, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.