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Treatt plc (LON:TET), might not be a large cap stock, but it saw significant share price movement during recent months on the LSE, rising to highs of UK£5.15 and falling to the lows of UK£4.00. 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 Treatt's current trading price of UK£4.22 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 Treatt’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 Treatt
Is Treatt Still Cheap?
The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Treatt’s ratio of 17.8x is trading slightly above its industry peers’ ratio of 17.8x, which means if you buy Treatt today, you’d be paying a relatively sensible price for it. And if you believe Treatt should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Furthermore, it seems like Treatt’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.
What kind of growth will Treatt 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. 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 the company's future expectations. Treatt's earnings over the next few years are expected to increase by 36%, 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? It seems like the market has already priced in TET’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 track record of its management team. Have these factors changed since the last time you looked at TET? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?