When Should You Buy Airtel Africa Plc (LON:AAF)?

While Airtel Africa Plc (LON:AAF) 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£1.38 and falling to the lows of UK£1.08. 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 Airtel Africa's current trading price of UK£1.18 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 Airtel Africa’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Airtel Africa

What's The Opportunity In Airtel Africa?

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 Airtel Africa’s ratio of 8.37x is trading slightly below its industry peers’ ratio of 13.24x, which means if you buy Airtel Africa today, you’d be paying a reasonable price for it. And if you believe that Airtel Africa 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. Although, there may be an opportunity to buy in the future. This is because Airtel Africa’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of Airtel Africa look like?

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. With profit expected to grow by 29% over the next couple of years, the future seems bright for Airtel Africa. 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? AAF’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 track record of its management team. Have these factors changed since the last time you looked at AAF? 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 AAF, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for AAF, 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.

If you want to dive deeper into Airtel Africa, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for Airtel Africa and you'll want to know about this.

If you are no longer interested in Airtel Africa, 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.