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Is There Now An Opportunity In Gage Roads Brewing Co. Limited (ASX:GRB)?

Simply Wall St

Gage Roads Brewing Co. Limited (ASX:GRB), which is in the beverage business, and is based in Australia, received a lot of attention from a substantial price movement on the ASX over the last few months, increasing to AU$0.094 at one point, and dropping to the lows of AU$0.085. 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 Gage Roads Brewing's current trading price of AU$0.085 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Gage Roads Brewing’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Gage Roads Brewing

What's the opportunity in Gage Roads Brewing?

According to my relative valuation model, the stock is currently overvalued. 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 33.16x is currently well-above the industry average of 27.56x, meaning that it is trading at a more expensive price relative to its peers. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since Gage Roads Brewing’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will Gage Roads Brewing generate?

ASX:GRB Past and Future Earnings, January 17th 2020

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. With profit expected to grow by 77% over the next couple of years, the future seems bright for Gage Roads Brewing. 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 well and truly priced in GRB’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe GRB should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on GRB for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for GRB, which means it’s worth diving deeper into other factors 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 Gage Roads Brewing. You can find everything you need to know about Gage Roads Brewing in the latest infographic research report. If you are no longer interested in Gage Roads Brewing, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.