The stock market can sometimes be like a Premier League season. You keep rooting for the big boys and all of a sudden, a certain Leicester City team outfoxes the whole lot. The Alternative Investment Market (AIM) happens to produce such stocks every now and then. I’m not saying that investing in AIM stocks is good or bad in general, just that they normally happen to be either ‘high-risk high-gain’ or ‘low-risk low-gain’ deals.
Looking for AIM stocks, I stumbled upon Springfield Properties (LSE:SPR). The company doesn’t exactly have a high market cap but recent months have been quite dynamic in terms of the share price, peaking at 165p and plummeting to 142p in the past three months. The recent fluctuations in the share price made it quite difficult for me to predict if there was potential for me to make gains from investing in the shares now.
Digging into the actual worth of Springfield Properties shares
The current share price for Springfield stock is 153p, and I’d like to give my two cents on why the share may not be undervalued. According to my estimates, the market value of the share is around 20% higher than its actual price. The intrinsic value to company’s shares, according to my estimate, stands somewhere between 120p to 125p.
Given the price volatility, this AIM stock has seen in the past few months, the share price can dip even lower than my estimated value. This obviously isn’t only a downside risk, but the volatility can also mean that the share price can go higher than its previous peak price level. The chances of that happening, however, are very slim given a thorough analysis of financial fundamentals.
Is there any chance of growth for Springfield shares?
The analysis presented above is based on the intrinsic value of the shares – something a value investor thinks about before investing. This is another perspective that looks at the company’s growth potential. Investors who defend this thesis are normally in the market for a longer period. So, what would such an investor see? They’d immediately look at the growth that the company’s profits are expected to see in the coming years. Roughly speaking, Springfield is expected to see around 85% growth in net profit over the next two years. This growth would result in higher cashflows for the company, which are very important factors when determining share value.
If I had already investing in the AIM stock, I would hold on for some time and see how the company is performing. If the downward trend continued long enough, I would sell my shares as soon as they they hit breakeven price. During this holding period, it would be important to keep an eye on the fundamentals i.e., the profit growth. If that also starts going against the estimates, I would immediately look for an exit strategy.
If I were looking to make a new investment for my portfolio, I wouldn’t buy Springfield shares. The share price seems to have hit its peak and I would not expect to earn any significant profits from investing in the company in the near future.
