While Supreme Plc (LON:SUP) might not have the largest market cap around , it received a lot of attention from a substantial price increase on the AIM over the last few months. Shareholders may appreciate the recent price jump, but the company still has a way to go before reaching its yearly highs again. Less-covered, small caps tend to present 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 Supreme's valuation and outlook in more detail to determine if there's still a bargain opportunity.
Check out our latest analysis for Supreme
The stock seems fairly valued at the moment according to our valuation model. It's trading around 1.64% above our intrinsic value, which means if you buy Supreme today, you'd be paying a relatively fair price for it. And if you believe that the stock is really worth £1.72, there's only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because Supreme's beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company's shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
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 Supreme, it is expected to deliver a negative earnings growth of -9.2%, which doesn't help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
Are you a shareholder? SUP seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you've been keeping tabs on SUP for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there's less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven't considered today, which can help gel your views on SUP should the price fluctuate below its true value.