Is Siltronic AG (ETR:WAF) Potentially Undervalued?

Siltronic AG (ETR:WAF), might not be a large cap stock, but it saw significant share price movement during recent months on the XTRA, rising to highs of €92.25 and falling to the lows of €70.20. 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 Siltronic's current trading price of €75.55 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Siltronic’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Siltronic

What Is Siltronic Worth?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Siltronic’s ratio of 15.74x is trading slightly below its industry peers’ ratio of 15.74x, which means if you buy Siltronic today, you’d be paying a decent price for it. And if you believe that Siltronic should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Is there another opportunity to buy low in the future? Since Siltronic’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will Siltronic 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. Though in the case of Siltronic, it is expected to deliver a negative earnings growth of -13%, 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, WAF 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 optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on WAF, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on WAF 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. 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 gel your views on WAF should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing Siltronic at this point in time. For example, we've found that Siltronic has 2 warning signs (1 is potentially serious!) that deserve your attention before going any further with your analysis.

If you are no longer interested in Siltronic, 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.