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While Volution Group plc (LON:FAN) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the LSE, rising to highs of UK£2.05 and falling to the lows of UK£1.57. 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 Volution Group's current trading price of UK£1.59 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 Volution Group’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 Volution Group?
According to my valuation model, Volution Group seems to be fairly priced at around 5.1% below my intrinsic value, which means if you buy Volution Group today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth £1.68, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Volution Group’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
Can we expect growth from Volution Group?
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 expected decline of -2.9% in revenues over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Volution Group. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Currently, FAN 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 de-risk your portfolio. Is your current exposure to the stock optimal 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 tabs on FAN for a while, now may not be the most optimal 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 gel your views on FAN should the price fluctuate below its true value.
In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Every company has risks, and we've spotted 2 warning signs for Volution Group you should know about.
If you are no longer interested in Volution Group, 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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