Is There Now An Opportunity In Air France-KLM SA (EPA:AF)?

Air France-KLM SA (EPA:AF), 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 €16.07 at one point, and dropping to the lows of €11.01. 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 Air France-KLM's current trading price of €11.04 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Air France-KLM’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Air France-KLM

Is Air France-KLM Still Cheap?

Good news, investors! Air France-KLM 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 Air France-KLM’s ratio of 1.83x is below its peer average of 5.23x, which indicates the stock is trading at a lower price compared to the Airlines industry. However, given that Air France-KLM’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of Air France-KLM 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. 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. However, with a negative profit growth of -12% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Air France-KLM. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Although AF is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. Consider whether you want to increase your portfolio exposure to AF, 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 tabs on AF for some time, 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.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, we've found that Air France-KLM has 3 warning signs (1 is significant!) that deserve your attention before going any further with your analysis.

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.