Transcat, Inc. (NASDAQ:TRNS), which is in the trade distributors business, and is based in United States, saw a decent share price growth in the teens level on the NASDAQGM over the last few months. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Lets take a look at Transcats outlook and value based on the most recent financial data to see if the opportunity still exists.
What is Transcat worth?
Transcat appears to be overvalued according to my relative valuation model. In this instance, Ive used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stocks cash flows. I find that Transcats ratio of 24.86x is above its peer average of 16.05x, which suggests the stock is overvalued compared to the Trade Distributors industry. In addition to this, it seems like Transcats share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.
What does the future of Transcat 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 its 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. However, with a negative profit growth of -0.6% expected next year, near-term growth certainly doesnt appear to be a driver for a buy decision for Transcat. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? If you believe TRNS is currently trading above its peers, selling high and buying it back up again when its price falls towards its real value can be profitable. Given the uncertainty from negative growth in the future, this could be the right time to de-risk your portfolio. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If youve been keeping tabs on TRNS for some time, now may not be the best time to enter into the stock. Price climbed passed its industry peers, in addition to a risky future outlook. However, there are also other important factors which we havent considered today, such as the track record of its management. Should the price fall in the future, will you be well-informed enough to buy?
Price is just the tip of the iceberg. Dig deeper into what truly matters the fundamentals before you make a decision on Transcat. You can find everything you need to know about Transcat in the latest infographic research report. If you are no longer interested in Transcat, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.