What Does Johnson Matthey Plc's (LON:JMAT) Share Price Indicate?

Johnson Matthey Plc (LON:JMAT), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the LSE. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Johnson Matthey’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Johnson Matthey

Is Johnson Matthey Still Cheap?

Johnson Matthey appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and 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 Johnson Matthey’s ratio of 32.37x is above its peer average of 23.05x, which suggests the stock is trading at a higher price compared to the Chemicals industry. But, is there another opportunity 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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Johnson Matthey 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. 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? JMAT’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe JMAT should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio 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 tabs on JMAT for some time, 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 JMAT, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you'd like to know more about Johnson Matthey as a business, it's important to be aware of any risks it's facing. Be aware that Johnson Matthey is showing 3 warning signs in our investment analysis and 1 of those makes us a bit uncomfortable...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.