At UK£57.85, Is It Time To Put Spirax Group plc (LON:SPX) On Your Watch List?
Spirax Group plc (LON:SPX), is not the largest company out there, but it saw significant share price movement during recent months on the LSE, rising to highs of UK£79.15 and falling to the lows of UK£54.45. 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 Spirax Group's current trading price of UK£57.85 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let's take a look at Spirax Group's outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
We've discovered 1 warning sign about Spirax Group. View them for free.
According to our valuation model, Spirax Group seems to be fairly priced at around 5.8% below our intrinsic value, which means if you buy Spirax Group today, you'd be paying a fair price for it. And if you believe the company's true value is £61.40, then there isn't much room for the share price grow beyond what it's currently trading. What's more, Spirax Group's share price may be more stable over time (relative to the market), as indicated by its low beta.
View our latest analysis for Spirax Group
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 22% over the next couple of years, the future seems bright for Spirax Group. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
Are you a shareholder? SPX's optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven't considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you've been keeping an eye on SPX, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it's worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Spirax Group, and understanding this should be part of your investment process.
If you are no longer interested in Spirax Group, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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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Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Saferoads Holdings as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.3%, which is based on a levered beta of 1.234. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. Check out our latest analysis for Saferoads Holdings Strength Debt is not viewed as a risk. Weakness Current share price is above our estimate of fair value. Opportunity Has sufficient cash runway for more than 3 years based on current free cash flows. Lack of analyst coverage makes it difficult to determine SRH's earnings prospects. Threat No apparent threats visible for SRH. Although the valuation of a company is important, it ideally won't be the sole piece of analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. 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