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Banca Sistema S.p.A. (BIT:BST), operating in the financial services industry based in Italy, led the BIT gainers with a relatively large price hike in the past couple of weeks. 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 Banca Sistema’s outlook and value based on the most recent financial data to see if the opportunity still exists.
See our latest analysis for Banca Sistema
What's the opportunity in Banca Sistema?
The stock seems fairly valued at the moment according to my relative valuation model. 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 5.37x is currently trading slightly below its industry peers’ ratio of 8.57x, which means if you buy Banca Sistema today, you’d be paying a reasonable price for it. And if you believe Banca Sistema should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. So, is there another chance to buy low in the future? Given that Banca Sistema’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Banca Sistema 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. Banca Sistema’s earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? BST’s optimistic 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 financial strength of the company. Have these factors changed since the last time you looked at BST? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping tabs on BST, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for BST, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.