At €24.28, Is Rexel S.A. (EPA:RXL) Worth Looking At Closely?

Rexel S.A. (EPA:RXL), is not the largest company out there, but it received a lot of attention from a substantial price increase on the ENXTPA over the last few months. The company is inching closer to its yearly highs following the recent share price climb. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Today we will analyse the most recent data on Rexel’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Rexel

What's The Opportunity In Rexel?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. 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 8.21x is currently trading slightly above its industry peers’ ratio of 7.99x, which means if you buy Rexel today, you’d be paying a relatively reasonable price for it. And if you believe Rexel 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 Rexel’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.

What does the future of Rexel look like?

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. Though in the case of Rexel, it is expected to deliver a negative earnings growth of -5.2%, 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? RXL seems priced close to industry peers 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 beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on RXL, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on RXL for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This 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 crystallize your views on RXL should the price fluctuate below the industry PE ratio.

If you'd like to know more about Rexel as a business, it's important to be aware of any risks it's facing. For instance, we've identified 2 warning signs for Rexel (1 is a bit unpleasant) you should be familiar with.

If you are no longer interested in Rexel, 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.