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Synthomer plc (LON:SYNT), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the LSE. With many analysts covering the 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? Let’s take a look at Synthomer’s outlook and value based on the most recent financial data to see if the opportunity still exists.
View our latest analysis for Synthomer
What's the opportunity in Synthomer?
Great news for investors – Synthomer is still trading at a fairly cheap price 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 6.83x is currently well-below the industry average of 29.78x, meaning that it is trading at a cheaper price relative to its peers. Synthomer’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 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 kind of growth will Synthomer generate?
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. Though in the case of Synthomer, it is expected to deliver a negative earnings growth of -12%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? Although SYNT is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. I recommend you think about whether you want to increase your portfolio exposure to SYNT, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you’ve been keeping tabs on SYNT for some time, but hesitant on making the leap, I recommend you research further into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.