Kromek Group plc (AIM:KMK), a semiconductors and semiconductor equipment company based in United Kingdom, received a lot of attention from a substantial price increase on the AIM in the over the last few months. Less covered, small-stocks like KMK sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could KMK still be trading at a low price relative to its actual value? Let’s examine KMK’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. Check out our latest analysis for Kromek Group
Is KMK still cheap?
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 KMK’s ratio of 1.8x is trading slightly below its industry peers’ ratio of 2.8x, which means if you buy KMK today, you’d be paying a relatively fair price for it. And if you believe that KMK should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that KMK’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from KMK?
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 KMK future expectations. In KMK’s case, its revenues over the next few years are expected to grow by 72.84%, 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? KMK’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 KMK? Will you have enough confidence to invest in the company should the price drop below its fair value?