At €49.57, Is BASF SE (ETR:BAS) Worth Looking At Closely?

Today we're going to take a look at the well-established BASF SE (ETR:BAS). The company's stock saw a significant share price rise of over 20% in the past couple of months on the XTRA. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s take a look at BASF’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for BASF

What's The Opportunity In BASF?

According to my 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, 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 BASF’s ratio of 8.68x is trading slightly below its industry peers’ ratio of 9.2x, which means if you buy BASF today, you’d be paying a reasonable price for it. And if you believe BASF should be trading in this range, then there isn’t much room for the share price to 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 BASF’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 BASF generate?

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 -9.0% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for BASF. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Currently, BAS appears to be trading around industry price multiples, 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 optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on BAS, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on BAS 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 crystallize your views on BAS should the price fluctuate below the industry PE ratio.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've found that BASF has 2 warning signs (1 is significant!) that deserve your attention before going any further with your analysis.

If you are no longer interested in BASF, 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.