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While Scientific Games Corporation (NASDAQ:SGMS) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$89.08 and falling to the lows of US$65.30. 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 Scientific Games' current trading price of US$65.30 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 Scientific Games’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Scientific Games still cheap?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 8.46% above my intrinsic value, which means if you buy Scientific Games today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is $60.21, there’s only an insignificant downside when the price falls to its real value. So, is there another chance to buy low in the future? Given that Scientific Games’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Scientific Games 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. Scientific Games' 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? SGMS’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. 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 the stock? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping tabs on SGMS, 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 want to dive deeper into Scientific Games, you'd also look into what risks it is currently facing. To help with this, we've discovered 5 warning signs (3 are potentially serious!) that you ought to be aware of before buying any shares in Scientific Games.
If you are no longer interested in Scientific Games, 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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