While Rotork plc (LON:ROR) might not be the most widely known stock at the moment, it led the LSE gainers with a relatively large price hike in the past couple of weeks. 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, could the stock still be trading at a relatively cheap price? Let’s take a look at Rotork’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What Is Rotork Worth?
According to my valuation model, the stock is currently overvalued by about 26%, trading at UK£3.07 compared to my intrinsic value of £2.44. This means that the buying opportunity has probably disappeared for now. But, is there another opportunity to buy low in the future? Given that Rotork’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Rotork generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. With profit expected to grow by 54% over the next couple of years, the future seems bright for Rotork. 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? ROR’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe ROR should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on ROR for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook is encouraging for ROR, which means 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 Rotork, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 1 warning sign for Rotork you should know about.
If you are no longer interested in Rotork, 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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