Adacel Technologies Limited (ASX:ADA), which is in the software business, and is based in Australia, saw a significant share price rise of over 20% in the past couple of months on the ASX. Less-covered, small caps tend to present 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? Today I will analyse the most recent data on Adacel Technologies’s outlook and valuation to see if the opportunity still exists.
What is Adacel Technologies worth?
Adacel Technologies appears to be overvalued by 27.89% at the moment, based on my discounted cash flow valuation. The stock is currently priced at AU$0.48 on the market compared to my intrinsic value of A$0.38. This means that the opportunity to buy Adacel Technologies at a good price has disappeared! But, is there another opportunity to buy low in the future? Given that Adacel Technologies’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Adacel Technologies 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. Adacel Technologies’s revenue growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in ADA’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 ADA 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 ADA for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for ADA, 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 Adacel Technologies. You can find everything you need to know about Adacel Technologies in the latest infographic research report. If you are no longer interested in Adacel Technologies, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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If you spot an error that warrants correction, please contact the editor at email@example.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. Thank you for reading.