At €0.76, Is It Time To Put Sonae, SGPS, S.A. (ELI:SON) On Your Watch List?

While Sonae, SGPS, S.A. (ELI:SON) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the ENXTLS over the last few months, increasing to €0.86 at one point, and dropping to the lows of €0.76. 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 Sonae SGPS' current trading price of €0.76 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 Sonae SGPS’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 Sonae SGPS

Is Sonae SGPS still cheap?

Sonae SGPS appears to be overvalued by 30% at the moment, based on my discounted cash flow valuation. The stock is currently priced at €0.76 on the market compared to my intrinsic value of €0.58. This means that the opportunity to buy Sonae SGPS at a good price has disappeared! If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Sonae SGPS’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of Sonae SGPS look like?

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. Sonae SGPS' earnings over the next few years are expected to increase by 60%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? SON’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe SON should trade below its current price, selling high and buying it back up again when its price falls towards its real value 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 tabs on SON for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for SON, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 2 warning signs for Sonae SGPS you should be mindful of and 1 of them doesn't sit too well with us.

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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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