Is Rexel S.A. (EPA:RXL) Potentially Undervalued?

Rexel S.A. (EPA:RXL), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the ENXTPA. 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. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Rexel’s outlook and valuation to see if the opportunity still exists.

Check out the opportunities and risks within the FR Trade Distributors industry.

Is Rexel Still Cheap?

According to my valuation model, Rexel seems to be fairly priced at around 8.4% below my intrinsic value, which means if you buy Rexel today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth €19.27, then there’s not much of an upside to gain from mispricing. 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 kind of growth will Rexel generate?

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 Rexel, it is expected to deliver a negative earnings growth of -8.6%, 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? Currently, RXL appears to be trading around its fair value, 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 an eye on RXL 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. In addition to this, 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 RXL should the price fluctuate below its true value.

So while earnings quality is important, it's equally important to consider the risks facing Rexel at this point in time. Case in point: We've spotted 2 warning signs for Rexel you should be mindful of and 1 of these is concerning.

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.