Instem plc (LON:INS), which is in the healthcare services business, and is based in United Kingdom, received a lot of attention from a substantial price increase on the AIM over the last few months. 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 examine Instem’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
See our latest analysis for Instem
What is Instem worth?
Instem appears to be overvalued by 48.56% at the moment, based on my discounted cash flow valuation. The stock is currently priced at UK£3.53 on the market compared to my intrinsic value of £2.38. This means that the opportunity to buy Instem at a good price has disappeared! If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since Instem’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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.
What does the future of Instem look like?
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. In Instem’s case, its revenues over the next few years are expected to grow by 32%, indicating a highly optimistic future ahead. If expense does not increase by the same rate, or higher, this top line growth should lead to stronger cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in INS’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe INS should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on INS for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for INS, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.