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While New Relic, Inc. (NYSE:NEWR) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the NYSE, rising to highs of US$80.77 and falling to the lows of US$56.02. 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 New Relic's current trading price of US$61.14 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at New Relic’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in New Relic?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 14.04% above my intrinsic value, which means if you buy New Relic today, you’d be paying a relatively fair price for it. And if you believe that the stock is really worth $53.61, there’s only an insignificant downside when the price falls to its real value. Furthermore, New Relic’s low beta implies that the stock is less volatile than the wider market.
Can we expect growth from New Relic?
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 extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for New Relic, at least in the near future.
What this means for you:
Are you a shareholder? Currently, NEWR appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on NEWR for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on NEWR should the price fluctuate below its true value.
With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To help with this, we've discovered 4 warning signs (1 is potentially serious!) that you ought to be aware of before buying any shares in New Relic.
If you are no longer interested in New Relic, 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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