Is There Now An Opportunity In Capgemini SE (EPA:CAP)?

Let's talk about the popular Capgemini SE (EPA:CAP). The company's shares saw significant share price movement during recent months on the ENXTPA, rising to highs of €214 and falling to the lows of €175. 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 Capgemini's current trading price of €177 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 Capgemini’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Capgemini

Is Capgemini Still Cheap?

According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Capgemini’s ratio of 17.98x is trading slightly above its industry peers’ ratio of 17.46x, which means if you buy Capgemini today, you’d be paying a relatively reasonable price for it. And if you believe Capgemini 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. Although, there may be an opportunity to buy in the future. This is because Capgemini’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.

What kind of growth will Capgemini generate?

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. Capgemini's earnings over the next few years are expected to increase by 31%, 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? It seems like the market has already priced in CAP’s positive outlook, 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 CAP? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on CAP, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for CAP, 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.

Diving deeper into the forecasts for Capgemini mentioned earlier will help you understand how analysts view the stock going forward. So feel free to check out our free graph representing analyst forecasts.

If you are no longer interested in Capgemini, 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.