Why BASF SE (ETR:BAS) Could Be Worth Watching

Let's talk about the popular BASF SE (ETR:BAS). The company's shares saw significant share price movement during recent months on the XTRA, rising to highs of €65.85 and falling to the lows of €57.88. 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 €61.29 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.

See 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 10.47x is trading slightly below its industry peers’ ratio of 11.41x, 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. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by a double-digit 13% over the next couple of years, the outlook is positive for BASF. 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? It seems like the market has already priced in BAS’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 BAS? 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 BAS, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for BAS, 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.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of BASF.

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.