Why BayWa Aktiengesellschaft (ETR:BYW) Could Be Worth Watching

BayWa Aktiengesellschaft (ETR:BYW), is not the largest company out there, but it received a lot of attention from a substantial price movement on the XTRA over the last few months, increasing to €60.60 at one point, and dropping to the lows of €52.00. 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 BayWa's current trading price of €55.60 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 BayWa’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 BayWa

Is BayWa Still Cheap?

The share price seems sensible at the moment 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 11.77x is currently trading slightly below its industry peers’ ratio of 11.78x, which means if you buy BayWa today, you’d be paying a reasonable price for it. And if you believe that BayWa 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. In addition to this, it seems like BayWa’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from BayWa?

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. However, with a negative profit growth of -9.2% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for BayWa. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? BYW seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on BYW, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on BYW for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on BYW should the price fluctuate below the industry PE ratio.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. When we did our research, we found 2 warning signs for BayWa (1 can't be ignored!) that we believe deserve your full attention.

If you are no longer interested in BayWa, 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.