Should You Investigate Treatt plc (LON:TET) At UK£4.16?

Treatt plc (LON:TET), is not the largest company out there, but it saw a decent share price growth of 12% on the LSE over the last few months. The recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s examine Treatt’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Treatt

Is Treatt Still Cheap?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’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 23.07x is currently trading slightly above its industry peers’ ratio of 22.24x, which means if you buy Treatt today, you’d be paying a relatively sensible price for it. And if you believe that Treatt should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, it seems like Treatt’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will Treatt 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. 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 61% over the next couple of years, the future seems bright for Treatt. 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? TET’s optimistic future growth appears to have been factored into the current share price, 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 TET? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on TET, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for TET, 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.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that Treatt has 1 warning sign and it would be unwise to ignore it.

If you are no longer interested in Treatt, 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.