Is Sodexo S.A. (EPA:SW) Potentially Undervalued?

Let's talk about the popular Sodexo S.A. (EPA:SW). The company's shares received a lot of attention from a substantial price movement on the ENXTPA over the last few months, increasing to €103 at one point, and dropping to the lows of €92.10. 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 Sodexo's current trading price of €96.10 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 Sodexo’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 Sodexo

What's The Opportunity In Sodexo?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 12% below my intrinsic value, which means if you buy Sodexo today, you’d be paying a reasonable price for it. And if you believe the company’s true value is €109.71, then there’s not much of an upside to gain from mispricing. In addition to this, Sodexo has a low beta, which suggests its share price is less volatile than the wider market.

What does the future of Sodexo 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. 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. Sodexo's earnings over the next few years are expected to increase by 34%, 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? SW’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. 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 the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping an eye on SW, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, 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.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, Sodexo has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

If you are no longer interested in Sodexo, 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.