Vectrus, Inc. (NYSE:VEC), which is in the aerospace & defense business, and is based in United States, received a lot of attention from a substantial price increase on the NYSE over the last few months. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Today I will analyse the most recent data on Vectrus’s outlook and valuation to see if the opportunity still exists.
Is Vectrus still cheap?
According to my relative valuation model, the stock seems to be currently fairly priced. 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 16.79x is currently trading slightly below its industry peers’ ratio of 20.88x, which means if you buy Vectrus today, you’d be paying a reasonable price for it. And if you believe Vectrus should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. Although, there may be an opportunity to buy in the future. This is because Vectrus’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What does the future of Vectrus 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. Vectrus’s earnings over the next few years are expected to increase by 52%, 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? VEC’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 VEC? 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 tabs on VEC, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for VEC, 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 Vectrus. You can find everything you need to know about Vectrus in the latest infographic research report. If you are no longer interested in Vectrus, 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 email@example.com. 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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