Should You Investigate Deutsche Lufthansa AG (ETR:LHA) At €6.20?

Deutsche Lufthansa AG (ETR:LHA), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the XTRA. The recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s examine Deutsche Lufthansa’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Deutsche Lufthansa

What's The Opportunity In Deutsche Lufthansa?

According to our 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. We’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 6.61x is currently trading slightly below its industry peers’ ratio of 6.81x, which means if you buy Deutsche Lufthansa today, you’d be paying a decent price for it. And if you believe Deutsche Lufthansa 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. Although, there may be an opportunity to buy in the future. This is because Deutsche Lufthansa’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 Deutsche Lufthansa 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. Deutsche Lufthansa's earnings over the next few years are expected to increase by 49%, 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 LHA’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 LHA? 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 LHA, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for LHA, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you'd like to know more about Deutsche Lufthansa as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Deutsche Lufthansa has 2 warning signs and it would be unwise to ignore them.

If you are no longer interested in Deutsche Lufthansa, 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.