Stock Analysis

Why Torpol S.A. (WSE:TOR) Could Be Worth Watching

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WSE:TOR
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Torpol S.A. (WSE:TOR), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the WSE over the last few months, increasing to zł13.85 at one point, and dropping to the lows of zł11.70. 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 Torpol's current trading price of zł11.90 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Torpol’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Torpol

What's the opportunity in Torpol?

According to my valuation model, Torpol seems to be fairly priced at around 18.44% above my intrinsic value, which means if you buy Torpol today, you’d be paying a relatively fair price for it. And if you believe that the stock is really worth PLN10.05, there’s only an insignificant downside when the price falls to its real value. Is there another opportunity to buy low in the future? Since Torpol’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. 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.

What does the future of Torpol look like?

earnings-and-revenue-growth
WSE:TOR Earnings and Revenue Growth April 1st 2021

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. 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? Currently, TOR appears to be trading around its fair value, 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 the stock, 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 optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, 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 its true value.

So while earnings quality is important, it's equally important to consider the risks facing Torpol at this point in time. For example, we've found that Torpol has 3 warning signs (1 shouldn't be ignored!) that deserve your attention before going any further with your analysis.

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