Is There Now An Opportunity In Allegro MicroSystems, Inc. (NASDAQ:ALGM)?

Allegro MicroSystems, Inc. (NASDAQ:ALGM), is not the largest company out there, but it saw a significant share price rise of 22% in the past couple of months on the NASDAQGS. While good news for shareholders, the company has traded much higher in the past year. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s examine Allegro MicroSystems’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Allegro MicroSystems

What Is Allegro MicroSystems Worth?

According to our valuation model, Allegro MicroSystems seems to be fairly priced at around 5.19% above our intrinsic value, which means if you buy Allegro MicroSystems today, you’d be paying a relatively reasonable price for it. And if you believe that the stock is really worth $29.64, there’s only an insignificant downside when the price falls to its real value. So, is there another chance to buy low in the future? Given that Allegro MicroSystems’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Allegro MicroSystems generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Though in the case of Allegro MicroSystems, it is expected to deliver a negative earnings growth of -8.8%, 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, ALGM appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in 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 ALGM for a while, now may not be the most advantageous 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 crystalize your views on ALGM should the price fluctuate below its true value.

So while earnings quality is important, it's equally important to consider the risks facing Allegro MicroSystems at this point in time. Case in point: We've spotted 1 warning sign for Allegro MicroSystems you should be aware of.

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

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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.