Looking for AIM stocks, I stumbled upon Springfield Properties (LSE:SPR). The company doesn’t exactly have a high market cap but recent months have been quite dynamic in terms of the share price, peaking at 165p and plummeting to 142p in the past three months. The recent fluctuations in the share price made it quite difficult for me to predict if there was potential for me to make gains from investing in the shares now.

Digging into the actual worth of Springfield Properties shares

The current share price for Springfield stock is 153p, and I’d like to give my two cents on why the share may not be undervalued. According to my estimates, the market value of the share is around 20% higher than its actual price. The intrinsic value to company’s shares, according to my estimate, stands somewhere between 120p to 125p.

Given the price volatility, this AIM stock has seen in the past few months, the share price can dip even lower than my estimated value. This obviously isn’t only a downside risk, but the volatility can also mean that the share price can go higher than its previous peak price level. The chances of that happening, however, are very slim given a thorough analysis of financial fundamentals.

Is there any chance of growth for Springfield shares?

The analysis presented above is based on the intrinsic value of the shares – something a value investor thinks about before investing. This is another perspective that looks at the company’s growth potential. Investors who defend this thesis are normally in the market for a longer period. So, what would such an investor see? They’d immediately look at the growth that the company’s profits are expected to see in the coming years. Roughly speaking, Springfield is expected to see around 85% growth in net profit over the next two years. This growth would result in higher cashflows for the company, which are very important factors when determining share value.

If I had already investing in the AIM stock, I would hold on for some time and see how the company is performing. If the downward trend continued long enough, I would sell my shares as soon as they they hit breakeven price. During this holding period, it would be important to keep an eye on the fundamentals i.e., the profit growth. If that also starts going against the estimates, I would immediately look for an exit strategy.

If I were looking to make a new investment for my portfolio, I wouldn’t buy Springfield shares. The share price seems to have hit its peak and I would not expect to earn any significant profits from investing in the company in the near future.

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The company seems to be fairly popular for those into computers and tech, and the financials seem to be quite interesting. The company’s price per share at the time I was writing this stood at 453p and the past year has been somewhat of a rollercoaster. The price peaked at 600p, but the pandemic hasn’t done anyone (except a few) any good, has it?

Fast forward, a year later since the first lockdown in the UK, there have been clear signs of recovery for Avast shares after the price plummeted to 420p in March 2021. But a dive into the company’s annual reports gives me an even better understanding of the company’s performance helping me find the answer to “should I invest in Avast or not?”

A good-looking financial position

When looking at the financial position of a company, the leverage (or put simple, its debt ratio) is a particularly important indicator. Generally, too much debt equals a bad financial position. But this isn’t always the case. If we put dilution away for a second, debt can be a great way to reduce tax liability and raise capital. That’s exactly what I did while researching Avast’s shares. I looked at its cash and debt together to draw a clearer picture.

Avast’s short-term liabilities stand at $623 million and long-term debt stands at $888.7 million. With the company’s receivables standing at $68.2 million and a cash balance of $175.7 million, it still is $1.27 billion short. Am I worried? Not yet. Avast has a total market cap of $6.80 billion, which puts any fatal risks due to liabilities out of question.

Zoom in a little more and you can figure out that the company uses its operating income minus non-cash expenses (i.e., depreciation and amortisation) or more technically known as EBITDA rather gracefully, with its net debt being 1.6x of the EBITDA. This plus the fact that earnings over the past two fiscal years have been rather consistent, with the company reducing its total liability over these years, point towards positive financial performance.

Avast hasn’t been shy of innovation either and with the demand for cybersecurity services on the rise, I most certainly expect its share price to rise further. This also depends on how effectively the company manages its cashflows in the coming years. Bear in mind, we are talking about generating liquid cash from profits to pay-off their debts and become less leveraged. This will certainly be a decisive factor in the coming years, but with the industry seeing growth and the company outperforming competitors in most departments, I like the look of Avast shares as one of my next investments.

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Faizan Mallick has no position in any of the shares mentioned. The Motley Fool UK has recommended Avast. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.