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When Should You Buy Dreamscape Networks Limited (ASX:DN8)?

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Dreamscape Networks Limited (ASX:DN8), which is in the it business, and is based in Singapore, led the ASX gainers with a relatively large price hike in the past couple of weeks. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at Dreamscape Networks’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Dreamscape Networks

Is Dreamscape Networks still cheap?

According to my relative valuation model, the stock seems to be currently fairly priced. I’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 14.32x is currently trading slightly below its industry peers’ ratio of 16.25x, which means if you buy Dreamscape Networks today, you’d be paying a reasonable price for it. And if you believe Dreamscape Networks should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. Although, there may be an opportunity to buy in the future. This is because Dreamscape Networks’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of Dreamscape Networks look like?

ASX:DN8 Past and Future Earnings, June 22nd 2019
ASX:DN8 Past and Future Earnings, June 22nd 2019

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Dreamscape Networks’s earnings over the next few years are expected to double, indicating a very optimistic future ahead. This 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 already priced in DN8’s positive outlook, with shares trading around its fair value. 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 DN8? Will you have enough conviction to buy should the price fluctuate below the true value?

Are you a potential investor? If you’ve been keeping tabs on DN8, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for DN8, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Dreamscape Networks. You can find everything you need to know about Dreamscape Networks in the latest infographic research report. If you are no longer interested in Dreamscape Networks, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.

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