Is Carl Zeiss Meditec AG (ETR:AFX) Potentially Undervalued?

While Carl Zeiss Meditec AG (ETR:AFX) might not have the largest market cap around , it saw significant share price movement during recent months on the XTRA, rising to highs of €71.15 and falling to the lows of €45.80. 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 Carl Zeiss Meditec's current trading price of €46.62 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 Carl Zeiss Meditec’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 Carl Zeiss Meditec

Is Carl Zeiss Meditec Still Cheap?

According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Carl Zeiss Meditec’s ratio of 22.83x is trading slightly below its industry peers’ ratio of 25.78x, which means if you buy Carl Zeiss Meditec today, you’d be paying a reasonable price for it. And if you believe that Carl Zeiss Meditec 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. So, is there another chance to buy low in the future? Given that Carl Zeiss Meditec’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 Carl Zeiss Meditec 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. Carl Zeiss Meditec's earnings over the next few years are expected to increase by 51%, 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? It seems like the market has already priced in AFX’s positive outlook, 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 AFX? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on AFX, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for AFX, 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.

If you want to dive deeper into Carl Zeiss Meditec, you'd also look into what risks it is currently facing. For example - Carl Zeiss Meditec has 1 warning sign we think you should be aware of.

If you are no longer interested in Carl Zeiss Meditec, 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.