Sociedad Química y Minera de Chile S.A. (NYSE:SQM) received a lot of attention from a substantial price increase on the NYSE over the last few months. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s examine Sociedad Química y Minera de Chile’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What's the opportunity in Sociedad Química y Minera de Chile?
Sociedad Química y Minera de Chile 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. 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 Sociedad Química y Minera de Chile’s ratio of 71.74x is above its peer average of 23.7x, which suggests the stock is trading at a higher price compared to the Chemicals industry. In addition to this, it seems like Sociedad Química y Minera de Chile’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.
What does the future of Sociedad Química y Minera de Chile 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. 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. With profit expected to more than double over the next couple of years, the future seems bright for Sociedad Química y Minera de Chile. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in SQM’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe SQM 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 tabs on SQM for some time, 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 SQM, which means it’s worth diving deeper into other factors 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 Sociedad Química y Minera de Chile at this point in time. To help with this, we've discovered 2 warning signs (1 is concerning!) that you ought to be aware of before buying any shares in Sociedad Química y Minera de Chile.
If you are no longer interested in Sociedad Química y Minera de Chile, 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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