While ACEA S.p.A. (BIT:ACE) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the BIT over the last few months, increasing to €18.55 at one point, and dropping to the lows of €16.29. 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 ACEA's current trading price of €17.22 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 ACEA’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in ACEA?
Great news for investors – ACEA is still trading at a fairly cheap price according to my price multiple model, where I compare the company's price-to-earnings ratio 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 12.94x is currently well-below the industry average of 20.3x, meaning that it is trading at a cheaper price relative to its peers. Another thing to keep in mind is that ACEA’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 its industry peers, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.
Can we expect growth from ACEA?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. ACEA's earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? Since ACE is currently below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. With a positive outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as financial health to consider, which could explain the current price multiple.
Are you a potential investor? If you’ve been keeping an eye on ACE for a while, now might be the time to make a leap. Its prosperous future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy ACE. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed assessment.
So while earnings quality is important, it's equally important to consider the risks facing ACEA at this point in time. When we did our research, we found 3 warning signs for ACEA (1 is a bit unpleasant!) that we believe deserve your full attention.
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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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