Is Southern Cross Electrical Engineering Limited (ASX:SXE) Potentially Undervalued?

Southern Cross Electrical Engineering Limited (ASX:SXE), is not the largest company out there, but it received a lot of attention from a substantial price increase on the ASX over the last few months. 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? Let’s examine Southern Cross Electrical Engineering’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Southern Cross Electrical Engineering

Is Southern Cross Electrical Engineering still cheap?

Great news for investors – Southern Cross Electrical Engineering 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 Southern Cross Electrical Engineering’s ratio of 12.23x is below its peer average of 19.4x, which indicates the stock is trading at a lower price compared to the Construction industry. Southern Cross Electrical Engineering’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

Can we expect growth from Southern Cross Electrical Engineering?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 91% over the next couple of years, the future seems bright for Southern Cross Electrical Engineering. 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 SXE is currently below the industry PE ratio, it may be a great time to increase your holdings in the stock. With an optimistic 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 capital structure to consider, which could explain the current price multiple.

Are you a potential investor? If you’ve been keeping an eye on SXE for a while, now might be the time to make a leap. Its buoyant future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy SXE. 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.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Southern Cross Electrical Engineering you should know about.

If you are no longer interested in Southern Cross Electrical Engineering, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

If you’re looking to trade Southern Cross Electrical Engineering, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.