American National Bankshares Inc. (NASDAQ:AMNB), operating in the financial services industry 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, which tends to lack high analyst coverage, 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 American National Bankshares’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
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What’s the opportunity in American National Bankshares?
According to my relative valuation model, the stock seems to be currently fairly priced. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 12.65x is currently trading slightly below its industry peers’ ratio of 14.52x, which means if you buy American National Bankshares today, you’d be paying a fair price for it. And if you believe that American National Bankshares 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 American National Bankshares’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 kind of growth will American National Bankshares 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. 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. With profit expected to grow by 61% over the next couple of years, the future seems bright for American National Bankshares. It looks like higher cash flow 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 AMNB’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 AMNB? Will you have enough conviction to buy should the price fluctuate below the true value?
Are you a potential investor? If you’ve been keeping an eye on AMNB, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for AMNB, 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 American National Bankshares. You can find everything you need to know about American National Bankshares in the latest infographic research report. If you are no longer interested in American National Bankshares, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.