While Gogo Inc. (NASDAQ:GOGO) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$19.10 and falling to the lows of US$12.23. 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 Gogo's current trading price of US$13.32 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 Gogo’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Gogo Still Cheap?
Great news for investors – Gogo 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. 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 Gogo’s ratio of 6.32x is below its peer average of 17.6x, which indicates the stock is trading at a lower price compared to the Wireless Telecom industry. What’s more interesting is that, Gogo’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What kind of growth will Gogo generate?
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. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Gogo, at least in the near future.
What This Means For You
Are you a shareholder? Although GOGO is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. I recommend you think about whether you want to increase your portfolio exposure to GOGO, 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 an eye on GOGO for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, 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 Gogo at this point in time. Our analysis shows 5 warning signs for Gogo (4 can't be ignored!) and we strongly recommend you look at these before investing.
If you are no longer interested in Gogo, 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.
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