Is Now The Time To Look At Buying Johnson Matthey Plc (LON:JMAT)?

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£23.73 and falling to the lows of UK£19.41. 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£19.76 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.

Check out our latest analysis for Johnson Matthey

What's The Opportunity In Johnson Matthey?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 12.45x is currently trading slightly below its industry peers’ ratio of 16.3x, which means if you buy Johnson Matthey today, you’d be paying a reasonable price for it. And if you believe Johnson Matthey should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. 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?

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. With profit expected to grow by 39% 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 industry price multiples. 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 JMAT? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

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 industry price multiples. However, the positive outlook is encouraging for JMAT, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 1 warning sign for Johnson Matthey you should be aware of.

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.