GAIN Capital Holdings Inc (NYSE:GCAP), a capital markets company based in United States, received a lot of attention from a substantial price increase on the NYSE in the over the last few months. 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 GAIN Capital Holdings’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What’s the opportunity in GAIN Capital Holdings?
GAIN Capital Holdings is currently overpriced based on my relative valuation model. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that GAIN Capital Holdings’s ratio of 25.4x is above its peer average of 16.55x, which suggests the stock is overvalued compared to the capital markets industry. Another thing to keep in mind is that GAIN Capital Holdings’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 intrinsic value over time, 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 GAIN Capital Holdings?
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. 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. GAIN Capital Holdings’s earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? GAIN Capital Holdings’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe GAIN Capital Holdings should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on GAIN Capital Holdings for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for GAIN Capital Holdings, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on GAIN Capital Holdings. You can find everything you need to know about GAIN Capital Holdings in the latest infographic research report. If you are no longer interested in GAIN Capital Holdings, you can use our free platform to see my list of over 50 other stocks with a high growth potential.