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While Gear4music (Holdings) plc (LON:G4M) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the AIM, rising to highs of UK£1.53 and falling to the lows of UK£0.88. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Gear4music (Holdings)'s current trading price of UK£0.92 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Gear4music (Holdings)’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for Gear4music (Holdings)
What Is Gear4music (Holdings) Worth?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 12.51x is currently trading slightly above its industry peers’ ratio of 10.86x, which means if you buy Gear4music (Holdings) today, you’d be paying a relatively reasonable price for it. And if you believe Gear4music (Holdings) should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Furthermore, Gear4music (Holdings)’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
Can we expect growth from Gear4music (Holdings)?
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 the company's future expectations. Gear4music (Holdings)'s earnings over the next few years are expected to increase by 79%, 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? G4M’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. 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 G4M? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?