Compugen Ltd (NASDAQ:CGEN), a life sciences tools and services company based in Israel, received a lot of attention from a substantial price movement on the NasdaqGM in the over the last few months, increasing to $4 at one point, and dropping to the lows of $2.45. 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 CGEN’s current trading price of $2.55 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 CGEN’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. See our latest analysis for CGEN
What’s the opportunity in CGEN?
According to my relative valuation model, CGEN seems to be currently fairly priced. I’ve used the price-to-book ratio in this instance because there’s not enough visibility to forecast its cash flows, and its earnings doesn’t seem to reflect its true value. The stock’s ratio of 3.4x is currently trading slightly below its industry peers’ ratio of 4.8x, which means if you buy CGEN today, you’d be paying a relatively reasonable price for it. And if you believe CGEN should be trading in this range, then there isn’t much room for the share price grow beyond what it’s currently trading. Furthermore, it seems like CGEN’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s fairly valued. This is because CGEN’s stock is less volatile than the wider market given its low beta.
Can we expect growth from CGEN?
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. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of CGEN, it is expected to deliver a highly negative earnings growth in the next few years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? CGEN seems fairly priced right now, 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 optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on CGEN, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on CGEN 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. In addition to this, 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 CGEN should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Compugen. You can find everything you need to know about CGEN in the latest infographic research report. If you are no longer interested in Compugen, 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.