Advertisement
New Zealand markets open in 2 hours 49 minutes
  • NZX 50

    11,809.48
    +77.20 (+0.66%)
     
  • NZD/USD

    0.6098
    +0.0001 (+0.02%)
     
  • ALL ORDS

    8,083.10
    -35.20 (-0.43%)
     
  • OIL

    76.91
    -0.66 (-0.85%)
     
  • GOLD

    2,335.50
    -57.40 (-2.40%)
     

Should You Think About Buying Rakon Limited (NZSE:RAK) Now?

Rakon Limited (NZSE:RAK), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the NZSE over the last few months, increasing to NZ$1.30 at one point, and dropping to the lows of NZ$0.99. 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 Rakon's current trading price of NZ$1.05 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 Rakon’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Rakon

What's The Opportunity In Rakon?

Good news, investors! Rakon is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 7.89x is currently well-below the industry average of 26.01x, meaning that it is trading at a cheaper price relative to its peers. However, given that Rakon’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.

What kind of growth will Rakon generate?

earnings-and-revenue-growth
earnings-and-revenue-growth

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. However, with a negative profit growth of -6.7% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Rakon. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Although RAK is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. I recommend you think about whether you want to increase your portfolio exposure to RAK, or whether diversifying into another stock may be a better move for your total risk and return.

ADVERTISEMENT

Are you a potential investor? If you’ve been keeping tabs on RAK for some time, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

So while earnings quality is important, it's equally important to consider the risks facing Rakon at this point in time. While conducting our analysis, we found that Rakon has 1 warning sign and it would be unwise to ignore it.

If you are no longer interested in Rakon, 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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here