dotdigital Group Plc (LON:DOTD), which is in the software business, and is based in United Kingdom, received a lot of attention from a substantial price movement on the AIM over the last few months, increasing to £1.12 at one point, and dropping to the lows of £0.88. 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 dotdigital Group's current trading price of £0.88 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 dotdigital 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 dotdigital Group?
According to my relative valuation model, the stock seems to be currently fairly priced. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that dotdigital Group’s ratio of 29.59x is trading in-line with its industry peers’ ratio, which means if you buy dotdigital Group today, you’d be paying a relatively reasonable price for it. In addition to this, it seems like dotdigital Group’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.
What does the future of dotdigital Group 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. With profit expected to grow by a double-digit 15% in the upcoming year, the short-term outlook is positive for dotdigital Group. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has already priced in DOTD’s positive outlook, 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 DOTD? 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 DOTD, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for DOTD, 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 dotdigital Group. You can find everything you need to know about dotdigital Group in the latest infographic research report. If you are no longer interested in dotdigital Group, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.