Is Carel Industries S.p.A. (BIT:CRL) Potentially Undervalued?

Carel Industries S.p.A. (BIT:CRL), might not be a large cap stock, but it led the BIT gainers with a relatively large price hike in the past couple of weeks. As a €2.1b market-cap stock, it seems odd Carel Industries is not more well-covered by analysts. However, this is not necessarily a bad thing given that there are less eyes on the stock to push it closer to fair value. Is there still an opportunity to buy? Let’s examine Carel Industries’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Carel Industries

Is Carel Industries still cheap?

Carel Industries is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison to the industry average. I’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 51.68x is currently well-above the industry average of 22.44x, meaning that it is trading at a more expensive price relative to its peers. In addition to this, it seems like Carel Industries’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from Carel Industries?

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 revenues expected to grow by a double-digit 17% over the next couple of years, the outlook is positive for Carel Industries. If the level of expenses is able to be maintained, 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 well and truly priced in CRL’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe CRL should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on CRL for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for CRL, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Carel Industries, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for Carel Industries you should be aware of.

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This article by Simply Wall St is general in nature. 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.
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