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Let's talk about the popular Fresenius SE & Co. KGaA (ETR:FRE). The company's shares received a lot of attention from a substantial price increase on the XTRA over the last few months. The company is now trading at yearly-high levels following the recent surge in its share price. With many analysts covering the large-cap 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 examine Fresenius SE KGaA’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
View our latest analysis for Fresenius SE KGaA
What's The Opportunity In Fresenius SE KGaA?
The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’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 26.47x is currently trading slightly above its industry peers’ ratio of 22.96x, which means if you buy Fresenius SE KGaA today, you’d be paying a relatively reasonable price for it. And if you believe that Fresenius SE KGaA should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. So, is there another chance to buy low in the future? Given that Fresenius SE KGaA’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 does the future of Fresenius SE KGaA 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. 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. With profit expected to more than double over the next couple of years, the future seems bright for Fresenius SE KGaA. 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 already priced in FRE’s positive outlook, with shares trading around industry price multiples. 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 FRE? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?