AFT Pharmaceuticals Limited (NZSE:AFT), a pharmaceuticals company based in New Zealand, saw a double-digit share price rise of over 10% in the past couple of months on the NZSE. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s take a look at AFT Pharmaceuticals’s outlook and value based on the most recent financial data to see if the opportunity still exists. Check out our latest analysis for AFT Pharmaceuticals
What’s the opportunity in AFT Pharmaceuticals?
AFT Pharmaceuticals is currently overpriced based on my relative valuation model. In this instance, I’ve used price-to-book ratio (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that AFT Pharmaceuticals’s ratio of 35.56x is above its peer average of 3.37x, which suggests the stock is overvalued compared to the Pharmaceuticals industry. Another thing to keep in mind is that AFT Pharmaceuticals’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.
What does the future of AFT Pharmaceuticals look like?
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. 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 revenue expected to more than double in the next few years, the future appears to be extremely bright for AFT Pharmaceuticals. If expenses can also be maintained, it looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? AFT’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe AFT 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 tabs on AFT for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for AFT, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on AFT Pharmaceuticals. You can find everything you need to know about AFT Pharmaceuticals in the latest infographic research report. If you are no longer interested in AFT Pharmaceuticals, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.