Stock Analysis

Is There Now An Opportunity In GEA Group Aktiengesellschaft (ETR:G1A)?

XTRA:G1A
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GEA Group Aktiengesellschaft (ETR:G1A), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the XTRA over the last few months, increasing to €39.80 at one point, and dropping to the lows of €32.49. 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 GEA Group's current trading price of €32.89 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 GEA Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for GEA Group

What's the opportunity in GEA Group?

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. 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 GEA Group’s ratio of 18.23x is trading slightly above its industry peers’ ratio of 15.21x, which means if you buy GEA Group today, you’d be paying a relatively reasonable price for it. And if you believe GEA Group should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that GEA Group’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 GEA Group generate?

earnings-and-revenue-growth
XTRA:G1A Earnings and Revenue Growth July 1st 2022

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. GEA Group's earnings over the next few years are expected to increase by 24%, 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? G1A’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. 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 G1A? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on G1A, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for G1A, 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.

Since timing is quite important when it comes to individual stock picking, it's worth taking a look at what those latest analysts forecasts are. Luckily, you can check out what analysts are forecasting by clicking here.

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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.