Sprout Social, Inc. (NASDAQ:SPT), is not the largest company out there, but it received a lot of attention from a substantial price movement on the NASDAQCM over the last few months, increasing to US$83.47 at one point, and dropping to the lows of US$45.86. 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 Sprout Social's current trading price of US$47.47 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 Sprout Social’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Sprout Social still cheap?
According to my valuation model, the stock is currently overvalued by about 33%, trading at US$47.47 compared to my intrinsic value of $35.69. This means that the opportunity to buy Sprout Social at a good price has disappeared! If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since Sprout Social’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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.
Can we expect growth from Sprout Social?
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. Though in the case of Sprout Social, it is expected to deliver a highly negative earnings growth in the next few 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? If you believe SPT is currently trading above its value, selling high and buying it back up again when its price falls towards its real value can be profitable. Given the risk from a negative growth outlook, this could be the right time to reduce your total portfolio risk. 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 SPT for a while, now may not be the best time to enter into the stock. Price climbed passed its true value, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Should the price fall in the future, will you be well-informed enough to buy?
If you want to dive deeper into Sprout Social, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 3 warning signs for Sprout Social (of which 1 shouldn't be ignored!) you should know about.
If you are no longer interested in Sprout Social, 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.