Harmonic Inc. (NASDAQ:HLIT), might not be a large cap stock, but it led the NASDAQGS gainers with a relatively large price hike in the past couple of weeks. Shareholders may appreciate the recent price jump, but the company still has a way to go before reaching its yearly highs again. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock's share price. However, could the stock still be trading at a relatively cheap price? Today we will analyse the most recent data on Harmonic's outlook and valuation to see if the opportunity still exists.
Is Harmonic Still Cheap?
Great news for investors – Harmonic 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 Harmonic's ratio of 19.12x is below its peer average of 26.32x, which indicates the stock is trading at a lower price compared to the Communications industry. Another thing to keep in mind is that Harmonic'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.
What does the future of Harmonic look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Though in the case of Harmonic, it is expected to deliver a negative earnings growth of -12%, 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? Although HLIT is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to HLIT, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you've been keeping an eye on HLIT for a while, but hesitant on making the leap, we recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. At Simply Wall St, we found 3 warning signs for Harmonic and we think they deserve your attention.
If you are no longer interested in Harmonic, 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com