While Total Brain Limited (ASX:TTB) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% in the past couple of months on the ASX. 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 examine Total Brain’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What's the opportunity in Total Brain?
Total Brain appears to be overvalued by 26% at the moment, based on my discounted cash flow valuation. The stock is currently priced at AU$0.051 on the market compared to my intrinsic value of A$0.04. This means that the buying opportunity has probably disappeared for now. But, is there another opportunity to buy low in the future? Given that Total Brain’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.
Can we expect growth from Total Brain?
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. In the upcoming year, Total Brain's earnings are expected to increase by 65%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in TTB’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe TTB 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 TTB 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 optimistic prospect is encouraging for TTB, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
If you'd like to know more about Total Brain as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 4 warning signs we've spotted with Total Brain (including 1 which makes us a bit uncomfortable).
If you are no longer interested in Total Brain, 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.