Aethlon Medical Inc (NASDAQ:AEMD), a medical equipment company based in United States, led the NasdaqCM gainers with a relatively large price hike in the past couple of weeks. 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 Aethlon Medical’s outlook and valuation to see if the opportunity still exists. Check out our latest analysis for Aethlon Medical
What’s the opportunity in Aethlon Medical?
Aethlon Medical is currently overpriced based on my relative valuation model. In this instance, I’ve used price-to-book ratio (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that Aethlon Medical’s ratio of 123.7x is above its peer average of 3.94x, which suggests the stock is overvalued compared to the medical equipment industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since Aethlon Medical’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 Aethlon Medical 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. However, with a negative profit growth of -15.65% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for Aethlon Medical. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? If you believe Aethlon Medical 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 reduce your total portfolio risk. 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 tabs on Aethlon Medical for some time, now may not be the best time to enter into the stock. Its price has risen beyond its industry peers, on top of a negative future outlook. However, there are also other important factors which we haven’t 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 Aethlon Medical. You can find everything you need to know about Aethlon Medical in the latest infographic research report. If you are no longer interested in Aethlon Medical, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see pass 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.