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While Velocity Composites plc (LON:VEL) might not have the largest market cap around , it received a lot of attention from a substantial price increase on the AIM over the last few months. The recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. As a small cap stock, hardly covered by any analysts, 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 take a look at Velocity Composites’s outlook and value based on the most recent financial data to see if the opportunity still exists.
Check out our latest analysis for Velocity Composites
What Is Velocity Composites Worth?
According to our valuation model, Velocity Composites seems to be fairly priced at around 16.51% above our intrinsic value, which means if you buy Velocity Composites today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is £0.22, there’s only an insignificant downside when the price falls to its real value. Is there another opportunity to buy low in the future? Since Velocity Composites’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. 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 Velocity Composites?
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. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. In the upcoming year, Velocity Composites' earnings are expected to increase by 73%, 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? VEL’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 the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping tabs on VEL, 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 the company, 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.