When Should You Buy MTU Aero Engines AG (ETR:MTX)?

Let's talk about the popular MTU Aero Engines AG (ETR:MTX). The company's shares saw significant share price movement during recent months on the XTRA, rising to highs of €216 and falling to the lows of €174. 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 MTU Aero Engines' current trading price of €184 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at MTU Aero Engines’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for MTU Aero Engines

What is MTU Aero Engines worth?

According to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. 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 MTU Aero Engines’s ratio of 44.27x is above its peer average of 23.12x, which suggests the stock is trading at a higher price compared to the Aerospace & Defense industry. But, is there another opportunity to buy low in the future? Given that MTU Aero Engines’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will MTU Aero Engines 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 MTU Aero Engines. 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? MTX’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe MTX should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on MTX for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for MTX, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into MTU Aero Engines, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for MTU Aero Engines you should be aware of.

If you are no longer interested in MTU Aero Engines, 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.