Should You Think About Buying Fabasoft AG (ETR:FAA) Now?

Fabasoft AG (ETR:FAA), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the XTRA over the last few months, increasing to €52.40 at one point, and dropping to the lows of €40.40. 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 Fabasoft's current trading price of €41.50 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Fabasoft’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 Fabasoft

What is Fabasoft worth?

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 42.42x is currently trading slightly above its industry peers’ ratio of 38.78x, which means if you buy Fabasoft today, you’d be paying a relatively reasonable price for it. And if you believe Fabasoft should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since Fabasoft’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.

Can we expect growth from Fabasoft?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 20% over the next couple of years, the future seems bright for Fabasoft. 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 FAA’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 FAA? 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 FAA, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for FAA, 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.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. At Simply Wall St, we found 3 warning signs for Fabasoft and we think they deserve your attention.

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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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