Is It The Right Time To Buy Kromek Group plc (AIM:KMK)?
Kromek Group plc (AIM:KMK), a semiconductors and semiconductor equipment company based in United Kingdom, received a lot of attention from a substantial price increase on the AIM in the over the last few months. Less covered, small-stocks like KMK 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 KMK still be trading at a low price relative to its actual value? Let’s examine KMK’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. Check out our latest analysis for Kromek Group
Is KMK still cheap?
The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-book (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 KMK’s ratio of 1.8x is trading slightly below its industry peers’ ratio of 2.8x, which means if you buy KMK today, you’d be paying a relatively fair price for it. And if you believe that KMK should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that KMK’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from KMK?
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. 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 KMK future expectations. In KMK’s case, its revenues over the next few years are expected to grow by 72.84%, indicating a highly optimistic future ahead. If expense does not increase by the same rate, or higher, this top line growth should lead to stronger cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? KMK’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at KMK? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on KMK, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for KMK, which means it’s worth further examining other factors such as the strength of its balance sheet, 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 Kromek Group. You can find everything you need to know about KMK in the latest infographic research report. If you are no longer interested in Kromek Group, 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.
