Is Now An Opportune Moment To Examine Covestro AG (ETR:1COV)?

Today we're going to take a look at the well-established Covestro AG (ETR:1COV). The company's stock saw a double-digit share price rise of over 10% in the past couple of months on the XTRA. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Today I will analyse the most recent data on Covestro’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Covestro

What's the opportunity in Covestro?

Great news for investors – Covestro is still trading at a fairly cheap price. According to my valuation, the intrinsic value for the stock is €76.15, but it is currently trading at €56.36 on the share market, meaning that there is still an opportunity to buy now. However, given that Covestro’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 Covestro 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. Covestro's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? Since 1COV is currently undervalued, it may be a great time to increase your holdings in the stock. With a positive outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as financial health to consider, which could explain the current undervaluation.

Are you a potential investor? If you’ve been keeping an eye on 1COV for a while, now might be the time to enter the stock. Its prosperous future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy 1COV. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed buy.

So while earnings quality is important, it's equally important to consider the risks facing Covestro at this point in time. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Covestro.

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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. 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.
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