HELLA GmbH & Co KGaA (FRA:HLE), which is in the auto components business, and is based in Germany, saw significant share price volatility over the past couple of months on the DB, rising to the highs of €52.65 and falling to the lows of €38.18. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether HELLA GmbH KGaA’s current trading price of €38.94 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at HELLA GmbH KGaA’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What’s the opportunity in HELLA GmbH KGaA?The stock seems fairly valued at the moment according to my relative valuation model. 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 10.76x is currently trading slightly above its industry peers’ ratio of 10.01x, which means if you buy HELLA GmbH KGaA today, you’d be paying a relatively reasonable price for it. And if you believe that HELLA GmbH KGaA should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because HELLA GmbH KGaA’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What does the future of HELLA GmbH KGaA look like?Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. HELLA GmbH KGaA’s earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? HLE’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at HLE? Will you have enough conviction to buy should the price fluctuate below the true value?
Are you a potential investor? If you’ve been keeping an eye on HLE, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for HLE, 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.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on HELLA GmbH KGaA. You can find everything you need to know about HELLA GmbH KGaA in the latest infographic research report. If you are no longer interested in HELLA GmbH KGaA, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.