Is Check-Cap Ltd (NASDAQ:CHEK) Undervalued?
Check-Cap Ltd (NASDAQ:CHEK), a medical equipment company based in Israel, saw a significant share price rise of over 20% in the past couple of months on the NasdaqCM. 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? Today I will analyse the most recent data on Check-Cap’s outlook and valuation to see if the opportunity still exists. View our latest analysis for Check-Cap
Is Check-Cap still cheap?
According to my relative valuation model, the stock seems to be currently fairly priced. In this instance, I’ve used the price-to-book (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that Check-Cap’s ratio of 2.45x is trading slightly below its industry peers’ ratio of 3.79x, which means if you buy Check-Cap today, you’d be paying a relatively fair price for it. And if you believe that Check-Cap should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Furthermore, it seems like Check-Cap’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.
What does the future of Check-Cap look like?
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. Though in the case of Check-Cap, it is expected to deliver a highly negative earnings growth in the upcoming, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? Currently, CHEK 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 beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on CHEK, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on CHEK for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The stock appears 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 gel your views on CHEK 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 Check-Cap. You can find everything you need to know about Check-Cap in the latest infographic research report. If you are no longer interested in Check-Cap, 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.
