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RCM Technologies, Inc. (NASDAQ:RCMT), which is in the professional services business, and is based in United States, led the NASDAQGM gainers with a relatively large price hike in the past couple of weeks. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine RCM Technologies’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Is RCM Technologies still cheap?
The stock seems fairly valued at the moment according to my relative valuation model. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 21.76x is currently trading slightly below its industry peers’ ratio of 25.14x, which means if you buy RCM Technologies today, you’d be paying a reasonable price for it. And if you believe that RCM Technologies should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Furthermore, RCM Technologies’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
What does the future of RCM Technologies look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. In the upcoming year, RCM Technologies’s earnings are expected to increase by 99%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? RCMT’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 financial strength of the company. Have these factors changed since the last time you looked at RCMT? Will you have enough conviction to buy should the price fluctuate below the true value?
Are you a potential investor? If you’ve been keeping an eye on RCMT, 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 RCMT, which means it’s worth further examining 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 RCM Technologies. You can find everything you need to know about RCM Technologies in the latest infographic research report. If you are no longer interested in RCM Technologies, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.