Is There Now An Opportunity In Torpol S.A. (WSE:TOR)?

Torpol S.A. (WSE:TOR), is not the largest company out there, but it led the WSE gainers with a relatively large price hike in the past couple of weeks. 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 take a look at Torpol’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for Torpol

What's the opportunity in Torpol?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 8.76x is currently trading slightly above its industry peers’ ratio of 7.5x, which means if you buy Torpol today, you’d be paying a relatively sensible price for it. And if you believe Torpol should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Although, there may be an opportunity to buy in the future. This is because Torpol’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of Torpol look like?

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. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Torpol, at least in the near future.

What this means for you:

Are you a shareholder? TOR seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on TOR, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on TOR for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on TOR should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing Torpol at this point in time. Every company has risks, and we've spotted 4 warning signs for Torpol (of which 1 can't be ignored!) you should know about.

If you are no longer interested in Torpol, 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. 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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