22nd Century Group Inc (AMEX:XXII), a tobacco company based in United States, received a lot of attention from a substantial price movement on the AMEX in the over the last few months, increasing to $3.41 at one point, and dropping to the lows of $1.99. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether XXII’s current trading price of $1.99 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 XXII’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. Check out our latest analysis for 22nd Century Group
What is XXII worth?
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 XXII’s ratio of 7.8x is trading slightly above its industry peers’ ratio of 6.7x, which means if you buy XXII today, you’d be paying a relatively reasonable price for it. And if you believe XXII should be trading in this range, then there isn’t really any room for the share price grow beyond what it’s currently trading. Is there another opportunity to buy low in the future? Since XXII’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much XXII moves relative to the rest of the market.
Can we expect growth from XXII?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 XXII future expectations. With profit expected to grow by 48.21% over the next couple of years, the future seems bright for XXII. It looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? XXII’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 track record of its management team. Have these factors changed since the last time you looked at XXII? 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 XXII, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for XXII, which means it’s worth diving deeper into 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 22nd Century Group. You can find everything you need to know about XXII in the latest infographic research report. If you are no longer interested in 22nd Century 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.