Should You Investigate BASF SE (ETR:BAS) At €51.40?

Let's talk about the popular BASF SE (ETR:BAS). The company's shares received a lot of attention from a substantial price movement on the XTRA over the last few months, increasing to €68.69 at one point, and dropping to the lows of €48.77. 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 BASF's current trading price of €51.40 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 BASF’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 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. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 8.37x is currently trading slightly below its industry peers’ ratio of 9.75x, 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. Although, there may be an opportunity to buy in the future. This is because BASF’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will BASF 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. Though in the case of BASF, it is expected to deliver a negative earnings growth of -4.7%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

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 de-risk your portfolio. Is your current exposure to the stock beneficial 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 an eye on BAS for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, 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.

If you'd like to know more about BASF as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with BASF, and understanding it should be part of your investment process.

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.