Is Now The Time To Look At Buying RHI Magnesita N.V. (LON:RHIM)?

RHI Magnesita N.V. (LON:RHIM), might not be a large cap stock, but it led the LSE gainers with a relatively large price hike in the past couple of weeks. 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? Let’s examine RHI Magnesita’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for RHI Magnesita

What's the opportunity in RHI Magnesita?

RHI Magnesita appears to be overvalued by 39% at the moment, based on my discounted cash flow valuation. The stock is currently priced at UK£44.84 on the market compared to my intrinsic value of £32.31. This means that the opportunity to buy RHI Magnesita at a good price has disappeared! But, is there another opportunity to buy low in the future? Given that RHI Magnesita’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 RHI Magnesita generate?

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 RHI Magnesita. 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 well and truly priced in RHIM’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 RHIM 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 tabs on RHIM for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook is encouraging for RHIM, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - RHI Magnesita has 4 warning signs we think you should be aware of.

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

If you’re looking to trade RHI Magnesita, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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