What Does Sonae, SGPS, S.A.'s (ELI:SON) Share Price Indicate?

While Sonae, SGPS, S.A. (ELI:SON) might not have the largest market cap around , it maintained its current share price over the past couple of month on the ENXTLS, with a relatively tight range of €0.89 to €0.95. However, does this price actually reflect the true 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.

View our latest analysis for Sonae SGPS

What's The Opportunity In Sonae SGPS?

Good news, investors! Sonae SGPS is still a bargain right now according to our price multiple model, which compares the company's price-to-earnings ratio to the industry average. We’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 4.6x is currently well-below the industry average of 14.87x, meaning that it is trading at a cheaper price relative to its peers. Another thing to keep in mind is that Sonae SGPS’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its industry peers, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.

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. 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 negative profit outlook does bring on some uncertainty, which equates to higher 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 tabs on SON for some time, but hesitant on making the leap, we recommend you research further 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.

So while earnings quality is important, it's equally important to consider the risks facing Sonae SGPS at this point in time. In terms of investment risks, we've identified 2 warning signs with Sonae SGPS, and understanding these should be part of your investment process.

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.

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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.