Stock Analysis

Is Now An Opportune Moment To Examine Sonae, SGPS, S.A. (ELI:SON)?

Source: Shutterstock

Sonae, SGPS, S.A. (ELI:SON), might not be a large cap stock, but it had a relatively subdued couple of weeks in terms of changes in share price, which continued to float around the range of €0.91 to €0.99. However, is this the true valuation level 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.

View our latest analysis for Sonae SGPS

Is Sonae SGPS Still Cheap?

Good news, investors! Sonae SGPS is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio 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 6.31x is currently well-below the industry average of 14.17x, meaning that it is trading at a cheaper price relative to its peers. What’s more interesting is that, Sonae SGPS’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. 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 kind of growth will Sonae SGPS generate?

ENXTLS:SON Earnings and Revenue Growth January 26th 2023

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 Sonae SGPS, at least in the near future.

What This Means For You

Are you a shareholder? Although SON is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to SON, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on SON for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

If you'd like to know more about Sonae SGPS as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 1 warning sign for Sonae SGPS you should be aware of.

If you are no longer interested in Sonae SGPS, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Valuation is complex, but we're helping make it simple.

Find out whether Sonae SGPS is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis