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PWO AG (ETR:PWO), might not be a large cap stock, but it saw a decent share price growth of 16% on the XTRA over the last few months. The recent jump in the share price has meant that the company is trading around its 52-week high. Less-covered, small caps sees 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 we will analyse the most recent data on PWO’s outlook and valuation to see if the opportunity still exists.
View our latest analysis for PWO
What's The Opportunity In PWO?
According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that PWO’s ratio of 7.48x is trading slightly below its industry peers’ ratio of 8.7x, which means if you buy PWO today, you’d be paying a decent price for it. And if you believe that PWO 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. So, is there another chance to buy low in the future? Given that PWO’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.
Can we expect growth from PWO?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 grow by 38% over the next couple of years, the future seems bright for PWO. 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? PWO’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at PWO? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?