Is AB Volvo (publ) (STO:VOLV B) Potentially Undervalued?

Today we're going to take a look at the well-established AB Volvo (publ) (STO:VOLV B). The company's stock saw a double-digit share price rise of over 10% in the past couple of months on the OM. The recent jump in the share price has meant that the company is trading around its 52-week high. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Today we will analyse the most recent data on AB Volvo’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for AB Volvo

What's The Opportunity In AB Volvo?

According to our valuation model, AB Volvo seems to be fairly priced at around 8.6% below our intrinsic value, which means if you buy AB Volvo today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth SEK281.93, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because AB Volvo’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 does the future of AB Volvo 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 a relatively muted profit growth of 2.7% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for AB Volvo, at least in the short term.

What This Means For You

Are you a shareholder? VOLV B’s future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping an eye on VOLV B, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing AB Volvo at this point in time. For instance, we've identified 2 warning signs for AB Volvo (1 doesn't sit too well with us) you should be familiar with.

If you are no longer interested in AB Volvo, 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.