Cardno Limited (ASX:CDD), might not be a large cap stock, but it 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? Let’s take a look at Cardno’s outlook and value based on the most recent financial data to see if the opportunity still exists.
Is Cardno still cheap?
Great news for investors – Cardno is still trading at a fairly cheap price. According to my valuation, the intrinsic value for the stock is A$0.52, but it is currently trading at AU$0.34 on the share market, meaning that there is still an opportunity to buy now. Cardno’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
What does the future of Cardno look like?
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 the company's future expectations. However, with an extreme expected decline in the top-line over the next couple of years, near-term growth is certainly not a driver of a buy decision. Even with a larger decline in expenses, it seems like high uncertainty is on the cards for Cardno.
What this means for you:
Are you a shareholder? Although CDD is currently undervalued, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to CDD, 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 CDD for a while, but hesitant on making the leap, I recommend you research further into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
If you'd like to know more about Cardno as a business, it's important to be aware of any risks it's facing. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Cardno.
If you are no longer interested in Cardno, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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. 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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