At €9.72, Is It Time To Put Semapa - Sociedade de Investimento e Gestão, SGPS, S.A. (ELI:SEM) On Your Watch List?

Semapa - Sociedade de Investimento e Gestão, SGPS, S.A. (ELI:SEM), is not the largest company out there, but it received a lot of attention from a substantial price increase on the ENXTLS over the last few months. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s take a look at Semapa - Sociedade de Investimento e Gestão SGPS’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Semapa - Sociedade de Investimento e Gestão SGPS

What's the opportunity in Semapa - Sociedade de Investimento e Gestão SGPS?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Semapa - Sociedade de Investimento e Gestão SGPS’s ratio of 9.18x is trading slightly below its industry peers’ ratio of 13.29x, which means if you buy Semapa - Sociedade de Investimento e Gestão SGPS today, you’d be paying a reasonable price for it. And if you believe Semapa - Sociedade de Investimento e Gestão SGPS should be trading in this range, then there isn’t much room for the share price to 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 Semapa - Sociedade de Investimento e Gestão SGPS’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 kind of growth will Semapa - Sociedade de Investimento e Gestão SGPS generate?

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. 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 a negative profit growth of -10% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Semapa - Sociedade de Investimento e Gestão SGPS. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? SEM 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 SEM, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on SEM for a while, now may not be the most optimal 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 crystallize your views on SEM should the price fluctuate below the industry PE ratio.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. When we did our research, we found 3 warning signs for Semapa - Sociedade de Investimento e Gestão SGPS (1 doesn't sit too well with us!) that we believe deserve your full attention.

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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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