Is There Now An Opportunity In Transtema Group AB (STO:TRANS)?

Transtema Group AB (STO:TRANS), is not the largest company out there, but it received a lot of attention from a substantial price increase on the OM over the last few months. Less-covered, small caps tend to present 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? Today I will analyse the most recent data on Transtema Group’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Transtema Group

What is Transtema Group worth?

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. 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 19.25x is currently trading slightly below its industry peers’ ratio of 23.02x, which means if you buy Transtema Group today, you’d be paying a reasonable price for it. And if you believe that Transtema Group should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, Transtema Group’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

Can we expect growth from Transtema Group?

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 -9.7% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Transtema Group. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? TRANS 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 reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on TRANS, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on TRANS 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 TRANS should the price fluctuate below the industry PE ratio.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Every company has risks, and we've spotted 2 warning signs for Transtema Group (of which 1 is significant!) you should know about.

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

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.

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