Melrose Industries PLC (LSE:MRO), a electrical company based in United Kingdom, saw significant share price volatility over the past couple of months on the LSE, rising to the highs of £2.27 and falling to the lows of £1.99. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Melrose Industries's current trading price of £2.12 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 Melrose Industries’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 Melrose Industries
What is Melrose Industries worth?
Melrose Industries appears to be overvalued according to my relative valuation model. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Melrose Industries’s ratio of 613.29x is above its peer average of 21.47x, which suggests the stock is overvalued compared to the electrical industry. But, is there another opportunity to buy low in the future? Since Melrose Industries’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. 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.What kind of growth will Melrose Industries 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. Melrose Industries’s earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in Melrose Industries’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe Melrose Industries should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on Melrose Industries for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for Melrose Industries, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Melrose Industries. You can find everything you need to know about Melrose Industries in the latest infographic research report. If you are no longer interested in Melrose Industries, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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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.
About LSE:MRO
Melrose Industries
Provides aerospace components and systems to civil and defence markets in the United Kingdom, rest of Europe, North America, and internationally.
Reasonable growth potential with mediocre balance sheet.