Landec Corporation (NASDAQ:LNDC), a food company based in United States, saw a double-digit share price rise of over 10% in the past couple of months on the NasdaqGS. 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 examine Landec’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. See our latest analysis for Landec
What’s the opportunity in Landec?
According to my relative valuation model, the stock seems to be currently fairly priced. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 19.34x is currently trading slightly below its industry peers’ ratio of 19.46x, which means if you buy Landec today, you’d be paying a fair price for it. And if you believe Landec should be trading in this range, then there isn’t much room for the share price grow beyond what it’s currently trading. Furthermore, Landec’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
Can we expect growth from Landec?
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 -8.26% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Landec. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? LNDC seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk 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 LNDC, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on LNDC 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. Furthermore, 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 LNDC should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Landec. You can find everything you need to know about Landec in the latest infographic research report. If you are no longer interested in Landec, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.