What Is Magic Software Enterprises Ltd.’s (NASDAQ:MGIC) Share Price Doing?

Magic Software Enterprises Ltd. (NASDAQ:MGIC), is not the largest company out there, but it led the NASDAQGS gainers with a relatively large price hike in the past couple of weeks. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Today I will analyze the most recent data on Magic Software Enterprises’s outlook and valuation to see if the opportunity still exists.

What Is Magic Software Enterprises Worth?

Great news for investors – Magic Software Enterprises is still trading at a fairly cheap price according to my price multiple model, where I compare the company’s price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Magic Software Enterprises’s ratio of 34.75x is below its peer average of 41.83x, which indicates the stock is trading at a lower price compared to the Software industry. However, given that Magic Software Enterprises’ share is fairly volatile (ie its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Magic Software Enterprises generate?

earnings-and-revenue-growth
NasdaqGS:MGIC Earnings and Revenue Growth August 3rd 2022

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. In the upcoming year, Magic Software Enterprises’ earnings are expected to increase by 65%, 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? Since MGIC is currently trading below the industry PE ratio, it may be a great time to increase your holdings in the stock. With an optimistic profit 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.

Are you a potential investor? If you’ve been keeping an eye on MGIC for a while, now might be the time to enter the stock. Its prosperous future profit outlook is not fully reflected in the current share price yet, which means it’s not too late to buy MGIC. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed investment decision.

If you want to dive deeper into Magic Software Enterprises, you’d also look into what risks it is currently facing. For example, we’ve discovered 1 warning sign that you should run your eye over to get a better picture of Magic Software Enterprises.

If you are no longer interested in Magic Software Enterprises, you can use our free platform to see our list of over 50 other stocks with 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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