Is There Now An Opportunity In B&M European Value Retail S.A. (LON:BME)?

While B&M European Value Retail S.A. (LON:BME) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the LSE, rising to highs of UK£6.10 and falling to the lows of UK£4.60. 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 B&M European Value Retail's current trading price of UK£4.60 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 B&M European Value Retail’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for B&M European Value Retail

Is B&M European Value Retail still cheap?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 B&M European Value Retail’s ratio of 10.66x is trading slightly below its industry peers’ ratio of 10.85x, which means if you buy B&M European Value Retail today, you’d be paying a decent price for it. And if you believe that B&M European Value Retail should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, B&M European Value Retail’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

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

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 -4.2%, 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? BME seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on BME, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on BME for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystallize your views on BME should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing B&M European Value Retail at this point in time. At Simply Wall St, we found 3 warning signs for B&M European Value Retail and we think they deserve your attention.

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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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.