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While RM plc (LON:RM.) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the LSE, rising to highs of UK£2.39 and falling to the lows of UK£2.00. 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 RM's current trading price of UK£2.13 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 RM’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in RM?
Great news for investors – RM is still trading at a fairly cheap price. My valuation model shows that the intrinsic value for the stock is £2.71, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. What’s more interesting is that, RM’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 RM generate?
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. With profit expected to more than double over the next couple of years, the future seems bright for RM. 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? Since RM. is currently undervalued, it may be a great time to accumulate more of your holdings in the stock. With an optimistic outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current undervaluation.
Are you a potential investor? If you’ve been keeping an eye on RM. for a while, now might be the time to enter the stock. Its prosperous future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy RM.. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed buy.
So while earnings quality is important, it's equally important to consider the risks facing RM at this point in time. You'd be interested to know, that we found 2 warning signs for RM and you'll want to know about them.
If you are no longer interested in RM, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
This article by Simply Wall St is general in nature. 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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