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SDI Group plc (LON:SDI), might not be a large cap stock, but it saw significant share price movement during recent months on the AIM, rising to highs of UK£0.70 and falling to the lows of UK£0.58. 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 SDI Group's current trading price of UK£0.58 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 SDI Group’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 SDI Group
What's The Opportunity In SDI Group?
According to our valuation model, SDI Group seems to be fairly priced at around 1.8% below our intrinsic value, which means if you buy SDI Group today, you’d be paying a reasonable price for it. And if you believe the company’s true value is £0.60, then there isn’t much room for the share price grow beyond what it’s currently trading. Is there another opportunity to buy low in the future? Since SDI Group’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.
What kind of growth will SDI Group generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. However, with a negative profit growth of -5.5% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for SDI Group. This certainty tips the risk-return scale towards higher risk.
What This Means For You
Are you a shareholder? Currently, SDI appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on SDI for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on SDI should the price fluctuate below its true value.