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While Enghouse Systems Limited (TSE:ENGH) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the TSX, rising to highs of CA$65.47 and falling to the lows of CA$54.85. 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 Enghouse Systems' current trading price of CA$60.19 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 Enghouse Systems’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Enghouse Systems still cheap?
Good news, investors! Enghouse Systems is still a bargain right now. My valuation model shows that the intrinsic value for the stock is CA$82.81, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. Enghouse Systems’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
What kind of growth will Enghouse Systems generate?
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. However, with a negative profit growth of -5.9% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for Enghouse Systems. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Although ENGH is currently undervalued, the negative outlook does bring on some uncertainty, which equates to higher risk. Consider whether you want to increase your portfolio exposure to ENGH, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you’ve been keeping an eye on ENGH for a while, but hesitant on making the leap, I recommend you research further into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've found that Enghouse Systems has 2 warning signs (1 is significant!) that deserve your attention before going any further with your analysis.
If you are no longer interested in Enghouse Systems, 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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