Is Johnson Matthey Plc (LON:JMAT) Potentially Undervalued?

Johnson Matthey Plc (LON:JMAT), might not be a large cap stock, but it saw significant share price movement during recent months on the LSE, rising to highs of UK£27.63 and falling to the lows of UK£19.31. 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 Johnson Matthey's current trading price of UK£19.39 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 Johnson Matthey’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 Johnson Matthey

What is Johnson Matthey worth?

According to my valuation model, Johnson Matthey seems to be fairly priced at around 16% below my intrinsic value, which means if you buy Johnson Matthey today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth £22.97, then there isn’t much room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that Johnson Matthey’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of Johnson Matthey look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to more than double over the next couple of years, the future seems bright for Johnson Matthey. 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? It seems like the market has already priced in JMAT’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping an eye on JMAT, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you want to dive deeper into Johnson Matthey, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Johnson Matthey has 3 warning signs and it would be unwise to ignore them.

If you are no longer interested in Johnson Matthey, 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.