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Semtech Corporation (NASDAQ:SMTC), might not be a large cap stock, but it led the NASDAQGS gainers with a relatively large price hike in the past couple of weeks. While good news for shareholders, the company has traded much higher in the past year. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s examine Semtech’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
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What's The Opportunity In Semtech?
Semtech appears to be overvalued by 38% at the moment, based on our discounted cash flow valuation. The stock is currently priced at US$34.66 on the market compared to our intrinsic value of $25.03. Not the best news for investors looking to buy! But, is there another opportunity to buy low in the future? Since Semtech’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.
View our latest analysis for Semtech
What kind of growth will Semtech generate?
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. In Semtech's case, its revenues over the next few years are expected to grow by 32%, indicating a highly optimistic future ahead. If expense does not increase by the same rate, or higher, this top line growth 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 SMTC’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 SMTC 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 SMTC for some time, 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 optimistic prospect is encouraging for SMTC, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.