Is It Time To Consider Buying SAF-Holland SE (ETR:SFQ)?

While SAF-Holland SE (ETR:SFQ) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the XTRA, rising to highs of €10.16 and falling to the lows of €6.75. 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 SAF-Holland's current trading price of €7.24 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 SAF-Holland’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for SAF-Holland

What's the opportunity in SAF-Holland?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 SAF-Holland’s ratio of 8.48x is trading slightly below its industry peers’ ratio of 13.17x, which means if you buy SAF-Holland today, you’d be paying a decent price for it. And if you believe that SAF-Holland should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. So, is there another chance to buy low in the future? Given that SAF-Holland’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will SAF-Holland generate?

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. SAF-Holland's earnings over the next few years are expected to increase by 82%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has already priced in SFQ’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at SFQ? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on SFQ, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for SFQ, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you'd like to know more about SAF-Holland as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 3 warning signs for SAF-Holland (of which 1 is potentially serious!) you should know about.

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

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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.