Citi maintained a Neutral rating on Quantasing Group Ltd (NASDAQ: QSG) but reduced its price target to $1.72 from $3.70. The adjustment, which came on Thursday, reflects a significant change in the company's valuation multiple, which Citi now sets at 0.37 times Price/Sales (P/S), a decrease from the previous 0.8 times P/S.
The revised target price is primarily due to a notable decrease in trading liquidity for Quantasing shares, resulting in wider bid-ask spreads and increased price volatility. Additionally, there has been a general trend in the market moving away from small-cap and growth stocks, which has further pressured the stock's performance. The perception of risk associated with early-stage growth companies has also heightened, contributing to the lower price target, said a Citi analyst.
Despite these headwinds, Citi's outlook on Quantasing remains cautiously optimistic over the long term. The firm's focus on the silver economy market, along with its initiatives to diversify revenue streams, provides a basis for this perspective. Moreover, Quantasing is expected to improve its operational efficiency, evidenced by a projected decrease in marketing expenses from 78% of revenue in Fiscal Year 2023 to 65% in Fiscal Year 2024.
Citi's updated price target implies an estimated total return (ETR) of around 4% over the next 12 months for Quantasing shares. While acknowledging the current challenges faced by the company, Citi continues to recognize the potential for growth in the long run, supported by strategic shifts in the company's business model.
InvestingPro Insights
As Citi adjusts its stance on Quantasing Group Ltd (NASDAQ: QSG), investors may find additional context in the latest metrics and analyst insights. Quantasing's market capitalization stands at a modest $93.2 million, reflecting its small-cap status which has been under pressure in the current market environment. The company boasts an impressive gross profit margin of 85.51% for the last twelve months as of Q3 2024, indicating strong operational efficiency in generating revenue over its cost of goods sold.
An InvestingPro Tip highlights that Quantasing is expected to see net income growth this year, aligning with Citi's long-term optimistic view. Furthermore, the company's low earnings multiple, with a P/E ratio of just 2.9, suggests that the stock could be undervalized relative to its earnings potential. While the stock has experienced high price volatility, as indicated by a 50% drop in the three-month price total return, this could present opportunities for investors with a tolerance for risk and a focus on potential recovery and growth.
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