At €0.58, Is EuropaCorp (EPA:ALECP) Worth Looking At Closely?

EuropaCorp (EPA:ALECP), 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. 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 take a look at EuropaCorp’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for EuropaCorp

Is EuropaCorp still cheap?

Good news, investors! EuropaCorp is still a bargain right now according to my price multiple model, which compares 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 EuropaCorp’s ratio of 4.27x is below its peer average of 65.94x, which indicates the stock is trading at a lower price compared to the Entertainment industry. Although, there may be another chance to buy again in the future. This is because EuropaCorp’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.

Can we expect growth from EuropaCorp?

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. However, with a negative profit growth of -16% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for EuropaCorp. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Although ALECP is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. I recommend you think about whether you want to increase your portfolio exposure to ALECP, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on ALECP for a while, but hesitant on making the leap, I recommend you research further into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

If you'd like to know more about EuropaCorp as a business, it's important to be aware of any risks it's facing. When we did our research, we found 7 warning signs for EuropaCorp (3 are a bit unpleasant!) that we believe deserve your full attention.

If you are no longer interested in EuropaCorp, 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.