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Somero Enterprises, Inc. (LON:SOM), might not be a large cap stock, but it saw a decent share price growth in the teens level on the AIM over the last few months. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine Somero Enterprises’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What is Somero Enterprises worth?
Good news, investors! Somero Enterprises is still a bargain right now according to my price multiple model, which compares 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 12.11x is currently well-below the industry average of 25.11x, meaning that it is trading at a cheaper price relative to its peers. What’s more interesting is that, Somero Enterprises’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to move closer to its industry peers, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.
Can we expect growth from Somero Enterprises?
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 Somero Enterprises, it is expected to deliver a relatively unexciting earnings growth of 6.0%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for Somero Enterprises, at least in the near term.
What this means for you:
Are you a shareholder? Even though growth is relatively muted, since SOM is currently trading below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. However, there are also other factors such as capital structure to consider, which could explain the current price multiple.
Are you a potential investor? If you’ve been keeping an eye on SOM for a while, now might be the time to make a leap. Its future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy SOM. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed assessment.
In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. At Simply Wall St, we found 1 warning sign for Somero Enterprises and we think they deserve your attention.
If you are no longer interested in Somero Enterprises, 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.