Is Vesuvius plc (LON:VSVS) Potentially Undervalued?

By
Simply Wall St
Published
September 30, 2021
LSE:VSVS
Source: Shutterstock

Vesuvius plc (LON:VSVS), is not the largest company out there, but it saw significant share price movement during recent months on the LSE, rising to highs of UK£5.67 and falling to the lows of UK£4.88. 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 Vesuvius' current trading price of UK£4.88 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Vesuvius’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 Vesuvius

Is Vesuvius still cheap?

Great news for investors – Vesuvius is still trading at a fairly cheap price according to my price multiple model, where I compare 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 Vesuvius’s ratio of 21.37x is below its peer average of 27.55x, which indicates the stock is trading at a lower price compared to the Machinery industry. What’s more interesting is that, Vesuvius’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. 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 Vesuvius generate?

earnings-and-revenue-growth
LSE:VSVS Earnings and Revenue Growth October 1st 2021

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. With profit expected to more than double over the next couple of years, the future seems bright for Vesuvius. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? Since VSVS is currently below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. With a positive outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current price multiple.

Are you a potential investor? If you’ve been keeping an eye on VSVS for a while, now might be the time to enter the stock. Its prosperous future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy VSVS. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed assessment.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 1 warning sign with Vesuvius, and understanding this should be part of your investment process.

If you are no longer interested in Vesuvius, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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