ContourGlobal plc (LON:GLO), is not the largest company out there, but it saw a significant share price rise of over 20% in the past couple of months on the LSE. 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? Let’s examine ContourGlobal’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
See our latest analysis for ContourGlobal
Is ContourGlobal still cheap?
Great news for investors – ContourGlobal is still trading at a fairly cheap price according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 ContourGlobal’s ratio of 20.59x is below its peer average of 25.69x, which indicates the stock is trading at a lower price compared to the Renewable Energy industry. What’s more interesting is that, ContourGlobal’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
Can we expect growth from ContourGlobal?
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. With profit expected to grow by 26% over the next couple of years, the future seems bright for ContourGlobal. 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? Since GLO is currently below the industry PE ratio, it may be a great time to increase your holdings in the stock. With a positive outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current price multiple.
Are you a potential investor? If you’ve been keeping an eye on GLO for a while, now might be the time to enter the stock. Its prosperous future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy GLO. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed investment decision.