Positive Sentiment Around Europcar Groupe SA. (EPA:EUCAR) Is Justified

Europcar Groupe SA. (ENXTPA:EUCAR)'s outlook is one of buoyant sentiment as it continues to post exciting top-line revenue growth. Currently trading at €9.03, the share price has been relatively stable over the past couple of months. I've been researching EUCAR for a while, and am impressed with the business led by Ms. Caroline Parot. Today I will touched on some key aspects you should know on a high level, around its financials and growth prospects going forward.

First, a short introduction to the company is in order. Europcar Groupe S.A., together with its subsidiaries, provides car rental services for business and leisure customers in Europe and internationally. Founded in 1949, it currently operates in France at a market cap of €1.45B.

EUCAR is exceeding expectations, with top-line rocketing up by 12.13% from last financial year . In the last five years, revenue has risen 2.82%, parallel with larger capital expenditure, which most recently reached €54.53M. With continual reinvestment into business operations, a return on investment of 18.52% is forecasted for the upcoming three years, according to the consensus of broker analysts covering the stock. Net income is expected to grow to €153.38M in the upcoming year, and over the next five years, earnings are expected to grow at an annual rate of 28.63% on average, compared to the industry average rate of 8.88%. These numbers tell me that EUCAR has a robust history of delivering profit to shareholders, with a disciplined approach to reinvesting into the company, and a bright future relative to its competitors in the industry.

Limiting your downside risk is an important part of investing, and financial health is a key determinant on whether EUCAR is a risky investment or not. Two major red flags for EUCAR are its debt level exceeds equity on its balance sheet, and its cash from its core activities is only enough to cover a mere -1.31% of this large debt amount. Furthermore, its EBIT was not able to sufficiently cover its interest payment, with a cover of 2.6x. This does lower my conviction around the sustainability of the business going forward. EUCAR has high near term liquidity, with short term assets (cash and other liquid assets) amply covering upcoming one-year liabilities, as well as long-term commitments. One reason I do like EUCAR as a business is its low level of fixed assets on its balance sheet (2.27% of total assets). When I think about the worst-case scenario in order to assess the downside, such as a downturn or bankruptcy, physical assets and inventory will be hard to liquidate and redistribute back to investors. EUCAR has virtually no fixed assets, which minimizes its downside risk.

EUCAR currently trades at €9.03 per share. With 160.2 million shares, that's a €1.45B market cap - which is too low for a company that has has a 5-year free cash flow cumulative average growth rate (CAGR) of 4.65% (source: analyst consensus). Given the consensus 2018 FCF level of €149.65M, the target price for EUCAR is €13.17. This means the stock is currently trading at a meaningful 31.43% discount. But, comparing EUCAR's current share price to its peers based on its industry and earnings level, it's overvalued by 48.37%, with a PE ratio of 21.42x vs. the industry average of 14.44x.

If you're thinking about buying EUCAR, you have to believe in its growth story, and the possibility that it has not yet been factored into its share price. However, my main reservation with the company is its financial health. For all the charts illustrating this analysis, take a look at the Simply Wall St platform, which is where I've taken my data from.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.