While Lucas Bols N.V. (AMS:BOLS) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price increase on the ENXTAM over the last few months. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Lucas Bols’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What is Lucas Bols worth?
Lucas Bols 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 50.77x is currently well-above the industry average of 24.12x, meaning that it is trading at a more expensive price relative to its peers. But, is there another opportunity to buy low in the future? Since Lucas Bols’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
Can we expect growth from Lucas Bols?
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 more than double over the next couple of years, the future seems bright for Lucas Bols. 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? BOLS’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe BOLS 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 BOLS 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 optimistic prospect is encouraging for BOLS, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
So while earnings quality is important, it's equally important to consider the risks facing Lucas Bols at this point in time. At Simply Wall St, we found 1 warning sign for Lucas Bols and we think they deserve your 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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