NZME Limited (NZSE:NZM), might not be a large cap stock, but it led the NZSE gainers with a relatively large price hike in the past couple of weeks. The company is now trading at yearly-high levels following the recent surge in its share price. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s take a look at NZME’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for NZME

Is NZME Still Cheap?

Great news for investors – NZME is still trading at a fairly cheap price according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. 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 NZME’s ratio of 15.62x is below its peer average of 20.11x, which indicates the stock is trading at a lower price compared to the Media industry. Another thing to keep in mind is that NZME’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its industry peers, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.

Can we expect growth from NZME?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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 78% over the next couple of years, the future seems bright for NZME. 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 NZM is currently below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. With an optimistic 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 financial health to consider, which could explain the current price multiple.