Is RWE Aktiengesellschaft (ETR:RWE) Potentially Undervalued?

Today we're going to take a look at the well-established RWE Aktiengesellschaft (ETR:RWE). The company's stock saw significant share price movement during recent months on the XTRA, rising to highs of €31.87 and falling to the lows of €28.14. 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 RWE's current trading price of €30.35 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at RWE’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 RWE

Is RWE Still Cheap?

The stock seems fairly valued at the moment according to our valuation model. It’s trading around 2.63% above our intrinsic value, which means if you buy RWE today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is €29.57, there’s only an insignificant downside when the price falls to its real value. What's more, RWE’s share price may be more stable over time (relative to the market), as indicated by its low beta.

Can we expect growth from RWE?

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 RWE, 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? RWE 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 RWE for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which 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 RWE 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 RWE is showing 3 warning signs in our investment analysis and 1 of those shouldn't be ignored...

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.