Cirrus Networks Holdings Limited (ASX:CNW), might not be a large cap stock, but it received a lot of attention from a substantial price increase 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? Today I will analyse the most recent data on Cirrus Networks Holdings’s outlook and valuation to see if the opportunity still exists.
Is Cirrus Networks Holdings still cheap?
Great news for investors – Cirrus Networks Holdings is still trading at a fairly cheap price according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 9.26x is currently well-below the industry average of 20.59x, meaning that it is trading at a cheaper price relative to its peers. However, given that Cirrus Networks Holdings’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from Cirrus Networks Holdings?
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. Cirrus Networks Holdings' earnings over the next few years are expected to increase by 36%, 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? Since CNW is currently trading below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. With an optimistic profit outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as financial health to consider, which could explain the current price multiple.
Are you a potential investor? If you’ve been keeping an eye on CNW for a while, now might be the time to enter the stock. Its prosperous future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy CNW. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed assessment.
With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - Cirrus Networks Holdings has 2 warning signs we think you should be aware of.
If you are no longer interested in Cirrus Networks Holdings, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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