While Rambus Inc. (NASDAQ:RMBS) might not have the largest market cap around , it led the NASDAQGS gainers with a relatively large price hike in the past couple of weeks. The recent share price gains has brought the company back closer to its yearly peak. 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? Today we will analyse the most recent data on Rambus's outlook and valuation to see if the opportunity still exists.
Check out our latest analysis for Rambus
What's The Opportunity In Rambus?
According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, we've used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock's cash flows. We find that Rambus's ratio of 24.93x is trading slightly below its industry peers' ratio of 24.96x, which means if you buy Rambus today, you'd be paying a decent price for it. And if you believe that Rambus should be trading at this level in the long run, then there's not much of an upside to gain over and above other industry peers. Although, there may be an opportunity to buy in the future. This is because Rambus'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 kind of growth will Rambus generate?
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 Rambus, it is expected to deliver a negative earnings growth of -5.1%, 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? Currently, RMBS appears to be trading around industry price multiples, 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 RMBS, take a look at whether its fundamentals have changed.
Are you a potential investor? If you've been keeping tabs on RMBS for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there's less benefit from mispricing. In addition to this, 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 RMBS should the price fluctuate below the industry PE ratio.
In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example, we've found that Rambus has 3 warning signs (2 don't sit too well with us!) that deserve your attention before going any further with your analysis.
If you are no longer interested in Rambus, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.