Is It Time To Consider Buying Sanlorenzo S.p.A. (BIT:SL)?

Sanlorenzo S.p.A. (BIT:SL), 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. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today I will analyse the most recent data on Sanlorenzo’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Sanlorenzo

What Is Sanlorenzo Worth?

Sanlorenzo 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. 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 Sanlorenzo’s ratio of 21.46x is above its peer average of 15.91x, which suggests the stock is trading at a higher price compared to the Leisure industry. Another thing to keep in mind is that Sanlorenzo’s share price is 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 the levels of its industry peers 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 for it to fall back down into an attractive buying range again.

What Kind Of Returns Can We Expect From Sanlorenzo In The Future?

Valuation is only one aspect of forming your investment views on Sanlorenzo. Another thing to consider is whether it is actually a high-quality company. The best type of investment is always in a great company, producing robust returns at a cheap price. A way to assess stock quality is by looking how much it returns to you as the investor compared to how much you’re invested. Sanlorenzo is expected to return 24% of your investment in the next couple of years if you buy the stock today. This is a solid return on your investment which builds up the case for owning the stock.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in SL’s high returns, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe SL 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 an eye on SL for a while, 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 stock’s expected high return is encouraging for SL, which means it’s worth further examination of other factors in order to take advantage of the next price drop.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example - Sanlorenzo has 1 warning sign we think you should be aware of.

If you are no longer interested in Sanlorenzo, 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.