When Should You Buy Downer EDI Limited (ASX:DOW)?

Downer EDI Limited (ASX:DOW), which is in the commercial services business, and is based in Australia, saw significant share price movement during recent months on the ASX, rising to highs of AU$8.88 and falling to the lows of AU$3.16. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Downer EDI's current trading price of AU$3.16 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Downer EDI’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Downer EDI

Is Downer EDI still cheap?

Good news, investors! Downer EDI is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 9.08x is currently well-below the industry average of 16.85x, meaning that it is trading at a cheaper price relative to its peers. What’s more interesting is that, Downer EDI’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from Downer EDI?

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. With profit expected to grow by 40% over the next couple of years, the future seems bright for Downer EDI. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? Since DOW is currently trading below the industry PE ratio, it may be a great time to increase your holdings in the stock. With a positive 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 DOW for a while, now might be the time to enter the stock. Its prosperous future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy DOW. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed assessment.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Downer EDI. You can find everything you need to know about Downer EDI in the latest infographic research report. If you are no longer interested in Downer EDI, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.