Zedge, Inc. (NYSEMKT:ZDGE), might not be a large cap stock, but it led the AMEX gainers with a relatively large price hike in the past couple of weeks. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at Zedge’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What is Zedge worth?
Great news for investors – Zedge is still trading at a fairly cheap price. My valuation model shows that the intrinsic value for the stock is $2.08, but it is currently trading at US$1.48 on the share market, meaning that there is still an opportunity to buy now. Although, there may be another chance to buy again in the future. This is because Zedge’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.
What does the future of Zedge look like?
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. With profit expected to grow by 76% over the next couple of years, the future seems bright for Zedge. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? Since ZDGE is currently undervalued, it may be a great time to accumulate more of your holdings in the stock. With a positive outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current undervaluation.
Are you a potential investor? If you’ve been keeping an eye on ZDGE for a while, now might be the time to enter the stock. Its prosperous future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy ZDGE. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed buy.
So while earnings quality is important, it's equally important to consider the risks facing Zedge at this point in time. Case in point: We've spotted 3 warning signs for Zedge you should be aware of.
If you are no longer interested in Zedge, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
This article by Simply Wall St is general in nature. 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.
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