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The Descartes Systems Group Inc (TSE:DSG), is not the largest company out there, but it led the TSX gainers with a relatively large price hike in the past couple of weeks. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s examine Descartes Systems Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Is Descartes Systems Group still cheap?
According to my valuation model, Descartes Systems Group seems to be fairly priced at around 10.37% above my intrinsic value, which means if you buy Descartes Systems Group today, you’d be paying a relatively reasonable price for it. And if you believe that the stock is really worth CA$82.65, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because Descartes Systems Group’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.
Can we expect growth from Descartes Systems Group?
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. Descartes Systems Group's earnings over the next few years are expected to increase by 79%, indicating a highly optimistic future ahead. This should lead to more robust 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 DSG’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 the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping tabs on DSG, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
If you'd like to know more about Descartes Systems Group as a business, it's important to be aware of any risks it's facing. For example - Descartes Systems Group has 1 warning sign we think you should be aware of.
If you are no longer interested in Descartes Systems Group, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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