What Is EROAD Limited’s (NZSE:ERD) Share Price Doing?
EROAD Limited (NZSE:ERD), a technology hardware and equipment company based in New Zealand, received a lot of attention from a substantial price increase on the NZSE in the over the last few months. 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 ERD’s outlook and value based on the most recent financial data to see if the opportunity still exists. See our latest analysis for ERD
What's the opportunity in ERD?
According to my relative valuation model, ERD seems to be currently fairly priced. I’ve used the price-to-book ratio in this instance because there’s not enough visibility to forecast its cash flows, and its earnings doesn’t seem to reflect its true value. The stock’s ratio of 3.2x is currently trading slightly below its industry peers’ ratio of 3.8x, which means if you buy ERD today, you’d be paying a relatively reasonable price for it. And if you believe ERD should be trading in this range, then there isn’t much room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that ERD’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 kind of growth will ERD generate?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio.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 ERD future expectations. With revenue expected to more than double in the next few years, the future appears to be extremely bright for ERD. If expenses can also be maintained, it looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has already priced in ERD’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 financial strength of the company. Have these factors changed since the last time you looked at ERD? 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 ERD, 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 ERD, 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 EROAD. You can find everything you need to know about ERD in the latest infographic research report. If you are no longer interested in EROAD, 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.
