Why Solar A/S (CPH:SOLAR B) Could Be Worth Watching

While Solar A/S (CPH:SOLAR B) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the CPSE over the last few months, increasing to kr.735 at one point, and dropping to the lows of kr.594. 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 Solar's current trading price of kr.594 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 Solar’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 Solar

What Is Solar Worth?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Solar’s ratio of 7.25x is trading slightly below its industry peers’ ratio of 9.5x, which means if you buy Solar today, you’d be paying a decent price for it. And if you believe that Solar 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. Although, there may be an opportunity to buy in the future. This is because Solar’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 does the future of Solar look like?

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. Though in the case of Solar, it is expected to deliver a relatively unexciting earnings growth of 5.5%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for Solar, at least in the near term.

What This Means For You

Are you a shareholder? It seems like the market has already priced in SOLAR B’s growth 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 SOLAR B? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on SOLAR B, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors 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. Every company has risks, and we've spotted 4 warning signs for Solar (of which 2 are a bit concerning!) you should know about.

If you are no longer interested in Solar, 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.