What Does Audax Renovables, S.A.'s (BME:ADX) Share Price Indicate?

Audax Renovables, S.A. (BME:ADX), is not the largest company out there, but it saw a significant share price rise of over 20% in the past couple of months on the BME. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine Audax Renovables’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Audax Renovables

What's the opportunity in Audax Renovables?

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. 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 Audax Renovables’s ratio of 39.76x is trading slightly above its industry peers’ ratio of 35.57x, which means if you buy Audax Renovables today, you’d be paying a relatively sensible price for it. And if you believe Audax Renovables 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. In addition to this, it seems like Audax Renovables’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will Audax Renovables 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. Audax Renovables' earnings over the next few years are expected to increase by 43%, 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? ADX’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at ADX? 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 ADX, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for ADX, 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.

So while earnings quality is important, it's equally important to consider the risks facing Audax Renovables at this point in time. Case in point: We've spotted 2 warning signs for Audax Renovables you should be mindful of and 1 of these shouldn't be ignored.

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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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