Is Pirelli & C. S.p.A. (BIT:PIRC) Potentially Undervalued?

Pirelli & C. S.p.A. (BIT:PIRC), might not be a large cap stock, but it saw a decent share price growth in the teens level on the BIT over the last few months. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s take a look at Pirelli & C’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Pirelli & C

Is Pirelli & C still cheap?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 Pirelli & C’s ratio of 20.97x is trading slightly above its industry peers’ ratio of 16.39x, which means if you buy Pirelli & C today, you’d be paying a relatively sensible price for it. And if you believe that Pirelli & C should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Although, there may be an opportunity to buy in the future. This is because Pirelli & C’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.

Can we expect growth from Pirelli & C?

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 98% over the next couple of years, the future seems bright for Pirelli & C. 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 already priced in PIRC’s positive outlook, 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 PIRC? 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 PIRC, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for PIRC, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you'd like to know more about Pirelli & C as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 2 warning signs with Pirelli & C, and understanding them should be part of your investment process.

If you are no longer interested in Pirelli & C, 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 Pirelli & C, 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. 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.
^*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.