Smart Parking Limited (ASX:SPZ), a electronic equipment, instruments and components company based in Australia, saw a decent share price growth in the teens level on the ASX 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 SPZ’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. View our latest analysis for Smart Parking
What is SPZ worth?
The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-book (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that SPZ’s ratio of 3.9x is trading slightly above its industry peers’ ratio of 2.1x, which means if you buy SPZ today, you’d be paying a relatively fair price for it. And if you believe SPZ should be trading in this range, then there isn’t really any room for the share price grow beyond what it’s currently trading. Furthermore, it seems like SPZ’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s fairly valued. This is because SPZ’s stock is less volatile than the wider market given its low beta.
What does the future of SPZ look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 SPZ future expectations. In SPZ’s case, its revenues over the next few years are expected to grow by 97.58%, 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? SPZ’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 SPZ? 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 an eye on SPZ, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for SPZ, 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.