Sprout Social, Inc. (NASDAQ:SPT), is not the largest company out there, but it saw a decent share price growth in the teens level on the NASDAQCM over the last few months. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Today I will analyse the most recent data on Sprout Social’s outlook and valuation to see if the opportunity still exists.
Is Sprout Social Still Cheap?
Good news, investors! Sprout Social is still a bargain right now. According to my valuation, the intrinsic value for the stock is $67.37, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. Sprout Social’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
What does the future of Sprout Social 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. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a negative profit growth of -5.1% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Sprout Social. This certainty tips the risk-return scale towards higher risk.
What This Means For You
Are you a shareholder? Although SPT is currently undervalued, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to SPT, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you’ve been keeping tabs on SPT for some time, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
So while earnings quality is important, it's equally important to consider the risks facing Sprout Social at this point in time. In terms of investment risks, we've identified 2 warning signs with Sprout Social, and understanding them should be part of your investment process.
If you are no longer interested in Sprout Social, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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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.