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Innospec Inc. (NASDAQ:IOSP), is not the largest company out there, but it saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$125 and falling to the lows of US$106. 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 Innospec's current trading price of US$117 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Innospec’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Check out our latest analysis for Innospec
What's The Opportunity In Innospec?
According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 20.22x is currently trading slightly below its industry peers’ ratio of 22.68x, which means if you buy Innospec today, you’d be paying a decent price for it. And if you believe that Innospec should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Is there another opportunity to buy low in the future? Since Innospec’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 does the future of Innospec look like?
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. With profit expected to grow by a double-digit 11% over the next couple of years, the outlook is positive for Innospec. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What This Means For You
Are you a shareholder? IOSP’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. 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 IOSP? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?