What Is Evonik Industries AG's (ETR:EVK) Share Price Doing?

Let's talk about the popular Evonik Industries AG (ETR:EVK). The company's shares 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. But what if there is still an opportunity to buy? Let’s examine Evonik Industries’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Evonik Industries

What's the opportunity in Evonik Industries?

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 28.6x is currently trading slightly above its industry peers’ ratio of 27.47x, which means if you buy Evonik Industries today, you’d be paying a relatively sensible price for it. And if you believe that Evonik Industries should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Although, there may be an opportunity to buy in the future. This is because Evonik Industries’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 Evonik Industries 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. Evonik Industries' earnings over the next few years are expected to increase by 93%, 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 EVK’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 track record of its management team. Have these factors changed since the last time you looked at EVK? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on EVK, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for EVK, 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 Evonik Industries, you'd also look into what risks it is currently facing. Case in point: We've spotted 3 warning signs for Evonik Industries you should be aware of.

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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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