Is B&M European Value Retail S.A. (LON:BME) Potentially Undervalued?

By
Simply Wall St
Published
October 21, 2021
LSE:BME
Source: Shutterstock

B&M European Value Retail S.A. (LON:BME), might not be a large cap stock, but it saw a decent share price growth in the teens level on the LSE over the last few months. 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. However, could the stock still be trading at a relatively cheap price? Today I will analyse the most recent data on B&M European Value Retail’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for B&M European Value Retail

What is B&M European Value Retail worth?

Good news, investors! B&M European Value Retail is still a bargain right now. My valuation model shows that the intrinsic value for the stock is £9.01, but it is currently trading at UK£6.07 on the share market, meaning that there is still an opportunity to buy now. Another thing to keep in mind is that B&M European Value Retail’s share price may be quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.

Can we expect growth from B&M European Value Retail?

earnings-and-revenue-growth
LSE:BME Earnings and Revenue Growth October 21st 2021

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. Though in the case of B&M European Value Retail, it is expected to deliver a negative earnings growth of -6.0%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? Although BME is currently undervalued, the negative outlook does bring on some uncertainty, which equates to higher risk. I recommend you think about whether you want to increase your portfolio exposure to BME, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping tabs on BME for some time, but hesitant on making the leap, I recommend you research further into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. In terms of investment risks, we've identified 2 warning signs with B&M European Value Retail, and understanding them should be part of your investment process.

If you are no longer interested in B&M European Value Retail, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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