While Severfield plc (LON:SFR) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the LSE over the last few months, increasing to UK£0.78 at one point, and dropping to the lows of UK£0.66. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Severfield's current trading price of UK£0.68 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Severfield’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Severfield

What's the opportunity in Severfield?

According to my valuation model, Severfield seems to be fairly priced at around 17.10% above my intrinsic value, which means if you buy Severfield today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is £0.58, then there isn’t really any room for the share price grow beyond what it’s currently trading. What's more, Severfield’s share price may be more stable over time (relative to the market), as indicated by its low beta.

What kind of growth will Severfield 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. Severfield's earnings over the next few years are expected to increase by 34%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? SFR’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping an eye on SFR, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Severfield at this point in time. In terms of investment risks, we've identified 1 warning sign with Severfield, and understanding this should be part of your investment process.

If you are no longer interested in Severfield, 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.