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RHI Magnesita N.V. (LON:RHIM), is not the largest company out there, but it saw a decent share price growth of 17% on the LSE over the last few months. The recent share price gains has brought the company back closer to its yearly peak. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Today we will analyse the most recent data on RHI Magnesita’s outlook and valuation to see if the opportunity still exists.
View our latest analysis for RHI Magnesita
What's The Opportunity In RHI Magnesita?
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. 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 12.28x is currently trading slightly below its industry peers’ ratio of 15.16x, which means if you buy RHI Magnesita today, you’d be paying a decent price for it. And if you believe RHI Magnesita should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since RHI Magnesita’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What does the future of RHI Magnesita look like?
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. RHI Magnesita's earnings over the next few years are expected to increase by 65%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What This Means For You
Are you a shareholder? RHIM’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 financial strength of the company. Have these factors changed since the last time you looked at RHIM? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?