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Supremex Inc. (TSE:SXP), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the TSX. 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 Supremex’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What's the opportunity in Supremex?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Supremex’s ratio of 5.95x is trading in-line with its industry peers’ ratio, which means if you buy Supremex today, you’d be paying a relatively sensible price for it. Although, there may be an opportunity to buy in the future. This is because Supremex’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What does the future of Supremex 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. 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. Though in the case of Supremex, it is expected to deliver a relatively unexciting top-line growth of 3.8% in the next few years, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.
What this means for you:
Are you a shareholder? It seems like the market has already priced in SXP’s growth outlook, 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 SXP? Will you have enough conviction to buy should the price fluctuate below the the industry PE ratio?
Are you a potential investor? If you’ve been keeping tabs on SXP, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.
If you want to dive deeper into Supremex, you'd also look into what risks it is currently facing. For example, we've found that Supremex has 3 warning signs (1 shouldn't be ignored!) that deserve your attention before going any further with your analysis.
If you are no longer interested in Supremex, 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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