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Is Now An Opportune Moment To Examine Downer EDI Limited (ASX:DOW)?

While Downer EDI Limited (ASX:DOW) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the ASX, rising to highs of AU$3.97 and falling to the lows of AU$3.02. 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 Downer EDI's current trading price of AU$3.32 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 Downer EDI’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Downer EDI

Is Downer EDI Still Cheap?

According to my valuation model, Downer EDI seems to be fairly priced at around 17.55% above my intrinsic value, which means if you buy Downer EDI today, you’d be paying a relatively fair price for it. And if you believe that the stock is really worth A$2.82, there’s only an insignificant downside when the price falls to its real value. So, is there another chance to buy low in the future? Given that Downer EDI’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.

What kind of growth will Downer EDI generate?

earnings-and-revenue-growth
earnings-and-revenue-growth

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. With profit expected to more than double over the next couple of years, the future seems bright for Downer EDI. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has already priced in DOW’s positive outlook, 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 the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

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Are you a potential investor? If you’ve been keeping tabs on DOW, 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 the company, 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.

If you'd like to know more about Downer EDI as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 3 warning signs for Downer EDI you should be mindful of and 1 of these is potentially serious.

If you are no longer interested in Downer EDI, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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