Is Now The Time To Look At Buying Tomra Systems ASA (OB:TOM)?

Tomra Systems ASA (OB:TOM), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the OB. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at Tomra Systems’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for Tomra Systems

What's The Opportunity In Tomra Systems?

Tomra Systems 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 Tomra Systems’s ratio of 33.49x is above its peer average of 25.28x, which suggests the stock is trading at a higher price compared to the Machinery industry. In addition to this, it seems like Tomra Systems’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 Tomra Systems?

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 42% over the next couple of years, the future seems bright for Tomra Systems. 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? TOM’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe TOM 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 TOM 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 positive outlook is encouraging for TOM, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you'd like to know more about Tomra Systems as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for Tomra Systems you should be mindful of and 1 of them is a bit concerning.

If you are no longer interested in Tomra Systems, 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.