When Should You Buy Dottikon Es Holding AG (VTX:DESN)?

While Dottikon Es Holding AG (VTX:DESN) might not be the most widely known stock at the moment, it saw a significant share price rise of over 20% in the past couple of months on the SWX. As a CHF4.4b market-cap stock, it seems odd Dottikon Es Holding is not more well-covered by analysts. Although, there is more of an opportunity for mispricing in stocks with low coverage, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today I will analyse the most recent data on Dottikon Es Holding’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Dottikon Es Holding

What's the opportunity in Dottikon Es Holding?

Dottikon Es Holding is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison 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 77.46x is currently well-above the industry average of 44.17x, meaning that it is trading at a more expensive price relative to its peers. In addition to this, it seems like Dottikon Es Holding’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from Dottikon Es Holding?

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. 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. In Dottikon Es Holding's case, its revenues over the next few years are expected to grow by 53%, indicating a highly optimistic future ahead. If expense does not increase by the same rate, or higher, this top line growth should lead to stronger cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in DESN’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe DESN should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on DESN for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for DESN, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 2 warning signs for Dottikon Es Holding you should be aware of.

If you are no longer interested in Dottikon Es Holding, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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.

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