Is Empresa Nacional de Telecomunicaciones S.A. (SNSE:ENTEL) Potentially Undervalued?

Empresa Nacional de Telecomunicaciones S.A. (SNSE:ENTEL), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the SNSE. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Today I will analyse the most recent data on Empresa Nacional de Telecomunicaciones’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Empresa Nacional de Telecomunicaciones

Is Empresa Nacional de Telecomunicaciones still cheap?

Great news for investors – Empresa Nacional de Telecomunicaciones 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. 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 7.25x is currently well-below the industry average of 18.81x, meaning that it is trading at a cheaper price relative to its peers. What’s more interesting is that, Empresa Nacional de Telecomunicaciones’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.

What kind of growth will Empresa Nacional de Telecomunicaciones generate?

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. Though in the case of Empresa Nacional de Telecomunicaciones, it is expected to deliver a negative earnings growth of -9.6%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? Although ENTEL is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. I recommend you think about whether you want to increase your portfolio exposure to ENTEL, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping tabs on ENTEL for some time, but hesitant on making the leap, I recommend you research further into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

So while earnings quality is important, it's equally important to consider the risks facing Empresa Nacional de Telecomunicaciones at this point in time. Our analysis shows 3 warning signs for Empresa Nacional de Telecomunicaciones (1 is a bit unpleasant!) and we strongly recommend you look at these before investing.

If you are no longer interested in Empresa Nacional de Telecomunicaciones, 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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