Reckon Limited (ASX:RKN), which is in the software business, and is based in Australia, led the ASX 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 take a look at Reckon’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What is Reckon worth?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 20% below my intrinsic value, which means if you buy Reckon today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth A$1.06, then there isn’t much room for the share price grow beyond what it’s currently trading. In addition to this, Reckon has a low beta, which suggests its share price is less volatile than the wider market.
Can we expect growth from Reckon?
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. However, with a relatively muted profit growth of 4.0% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Reckon, at least in the short term.
What this means for you:
Are you a shareholder? RKN’s 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 the stock? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping an eye on RKN, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook 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 Reckon. You can find everything you need to know about Reckon in the latest infographic research report. If you are no longer interested in Reckon, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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.
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