Is It Time To Consider Buying Xilam Animation (EPA:XIL)?

Xilam Animation (EPA:XIL), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the ENXTPA over the last few months, increasing to €49.00 at one point, and dropping to the lows of €42.40. 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 Xilam Animation's current trading price of €43.15 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Xilam Animation’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 Xilam Animation

What's the opportunity in Xilam Animation?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’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 34.03x is currently trading slightly above its industry peers’ ratio of 31.51x, which means if you buy Xilam Animation today, you’d be paying a relatively reasonable price for it. And if you believe that Xilam Animation should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, Xilam Animation’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

Can we expect growth from Xilam Animation?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. With profit expected to grow by 81% over the next couple of years, the future seems bright for Xilam Animation. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? XIL’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 financial strength of the company. Have these factors changed since the last time you looked at XIL? 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 tabs on XIL, 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 XIL, 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.

Since timing is quite important when it comes to individual stock picking, it's worth taking a look at what those latest analysts forecasts are. So feel free to check out our free graph representing analyst forecasts.

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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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