Should You Think About Buying Avation PLC (LON:AVAP) Now?
Avation PLC (LON:AVAP), is not the largest company out there, but it received a lot of attention from a substantial price movement on the LSE over the last few months, increasing to UK£1.42 at one point, and dropping to the lows of UK£1.13. 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 Avation's current trading price of UK£1.22 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 Avation’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Check out our latest analysis for Avation
What's The Opportunity In Avation?
Good news, investors! Avation is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio to the industry average. 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 2.67x is currently well-below the industry average of 10.71x, meaning that it is trading at a cheaper price relative to its peers. However, given that Avation’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.
Can we expect growth from Avation?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 the company's future expectations. However, with an expected decline of -3.1% in revenues over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Avation. This certainty tips the risk-return scale towards higher risk.
What This Means For You
Are you a shareholder? Although AVAP is currently trading below the industry PE ratio, the negative outlook does bring on some uncertainty, which equates to higher risk. Consider whether you want to increase your portfolio exposure to AVAP, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you’ve been keeping an eye on AVAP for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
So while earnings quality is important, it's equally important to consider the risks facing Avation at this point in time. For example, we've found that Avation has 4 warning signs (2 shouldn't be ignored!) that deserve your attention before going any further with your analysis.
If you are no longer interested in Avation, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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