Is Castellum AB (publ) (STO:CAST) Potentially Undervalued?

Simply Wall St · 09/15/2023 11:51

Castellum AB (publ) (STO:CAST), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the OM. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s examine Castellum’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Castellum

Is Castellum Still Cheap?

Castellum appears to be overvalued by 39% at the moment, based on my discounted cash flow valuation. The stock is currently priced at kr118 on the market compared to my intrinsic value of SEK84.52. This means that the opportunity to buy Castellum at a good price has disappeared! But, is there another opportunity to buy low in the future? Since Castellum’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.

What kind of growth will Castellum generate?

OM:CAST Earnings and Revenue Growth September 15th 2023

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. Though in the case of Castellum, it is expected to deliver a negative revenue growth of -2.1% over the next couple of 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 CAST 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. 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 tabs on CAST for some time, now may not be the best time to enter into the stock. The company’s 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?

So while earnings quality is important, it's equally important to consider the risks facing Castellum at this point in time. For example, we've found that Castellum has 2 warning signs (1 makes us a bit uncomfortable!) that deserve your attention before going any further with your analysis.

If you are no longer interested in Castellum, you can use our free platform to see our list of over 50 other stocks with a high growth potential.