Why Bergs Timber AB (publ) (STO:BRG B) Could Be Worth Watching

While Bergs Timber AB (publ) (STO:BRG B) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the OM over the last few months, increasing to kr2.89 at one point, and dropping to the lows of kr2.52. 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 Bergs Timber's current trading price of kr2.75 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 Bergs Timber’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Bergs Timber

What's the opportunity in Bergs Timber?

Bergs Timber appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and 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 22.17x is currently well-above the industry average of 14.12x, meaning that it is trading at a more expensive price relative to its peers. Furthermore, Bergs Timber’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach levels around its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

What does the future of Bergs Timber look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Bergs Timber's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in BRG B’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe BRG B should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio 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 an eye on BRG B for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for BRG B, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you'd like to know more about Bergs Timber as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 2 warning signs for Bergs Timber and we think they deserve your 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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