Is It Time To Consider Buying Air France-KLM SA (EPA:AF)?

While Air France-KLM SA (EPA:AF) might not have the largest market cap around , it saw a double-digit share price rise of over 10% in the past couple of months on the ENXTPA. While good news for shareholders, the company has traded much higher in the past year. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at Air France-KLM’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Air France-KLM

Is Air France-KLM Still Cheap?

According to our valuation model, Air France-KLM seems to be fairly priced at around 6.7% below our intrinsic value, which means if you buy Air France-KLM today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth €12.75, then there isn’t much room for the share price grow beyond what it’s currently trading. Is there another opportunity to buy low in the future? Since Air France-KLM’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.

Can we expect growth from Air France-KLM?

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. Though in the case of Air France-KLM, it is expected to deliver a negative earnings growth of -6.0%, 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, AF 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 AF for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems 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 AF should the price fluctuate below its true value.

So while earnings quality is important, it's equally important to consider the risks facing Air France-KLM at this point in time. When we did our research, we found 2 warning signs for Air France-KLM (1 is a bit concerning!) that we believe deserve your full attention.

If you are no longer interested in Air France-KLM, 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.