Progress-Werk Oberkirch AG (FRA:PWO), which is in the auto components business, and is based in Germany, saw a double-digit share price rise of over 10% in the past couple of months on the DB. 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 Progress-Werk Oberkirch’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Is Progress-Werk Oberkirch still cheap?
The stock seems fairly valued at the moment according to my relative valuation model. 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 Progress-Werk Oberkirch’s ratio of 14.08x is trading in-line with its industry peers’ ratio, which means if you buy Progress-Werk Oberkirch today, you’d be paying a relatively reasonable price for it. Although, there may be an opportunity to buy in the future. This is because Progress-Werk Oberkirch’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 kind of growth will Progress-Werk Oberkirch generate?
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. With profit expected to more than double over the next couple of years, the future seems bright for Progress-Werk Oberkirch. 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? PWO’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 track record of its management team. Have these factors changed since the last time you looked at PWO? 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 PWO, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for PWO, 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 Progress-Werk Oberkirch. You can find everything you need to know about Progress-Werk Oberkirch in the latest infographic research report. If you are no longer interested in Progress-Werk Oberkirch, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.