While Volution Group plc (LON:FAN) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the LSE over the last few months, increasing to UK£2.05 at one point, and dropping to the lows of UK£1.57. 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 Volution Group's current trading price of UK£1.59 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 Volution Group’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 Volution Group?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 5.1% below my intrinsic value, which means if you buy Volution Group today, you’d be paying a reasonable price for it. And if you believe the company’s true value is £1.68, then there’s not much of an upside to gain from mispricing. Is there another opportunity to buy low in the future? Since Volution Group’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. 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 Volution Group 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. Though in the case of Volution Group, it is expected to deliver a negative revenue growth of -2.9% over the next couple of years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? Currently, FAN appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on FAN for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on FAN should the price fluctuate below its true value.
So while earnings quality is important, it's equally important to consider the risks facing Volution Group at this point in time. At Simply Wall St, we found 2 warning signs for Volution Group and we think they deserve your attention.
If you are no longer interested in Volution Group, 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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