Is It Too Late To Consider Buying K+S Aktiengesellschaft (ETR:SDF)?

By
Simply Wall St
Published
May 08, 2022
XTRA:SDF
Source: Shutterstock

While K+S Aktiengesellschaft (ETR:SDF) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price increase on the XTRA over the last few months. As a mid-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 K+S’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for K+S

What's the opportunity in K+S?

According to my valuation model, K+S seems to be fairly priced at around 14% below my intrinsic value, which means if you buy K+S today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth €35.93, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because K+S’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 K+S generate?

earnings-and-revenue-growth
XTRA:SDF Earnings and Revenue Growth May 8th 2022

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. Though in the case of K+S, it is expected to deliver a highly negative earnings growth in the next few years, 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? SDF seems fairly priced right now, 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 the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on SDF for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which 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 crystalize your views on SDF should the price fluctuate below its true value.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Be aware that K+S is showing 3 warning signs in our investment analysis and 2 of those shouldn't be ignored...

If you are no longer interested in K+S, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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