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Let's talk about the popular Fresenius Medical Care AG (ETR:FME). The company's shares saw a significant share price rise of 23% in the past couple of months on the XTRA. The recent share price gains has brought the company back closer to its yearly peak. As a large-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, could the stock still be trading at a relatively cheap price? Today we will analyse the most recent data on Fresenius Medical Care’s outlook and valuation to see if the opportunity still exists.
See our latest analysis for Fresenius Medical Care
What Is Fresenius Medical Care Worth?
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. 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 Fresenius Medical Care’s ratio of 19.39x is trading slightly below its industry peers’ ratio of 20.07x, which means if you buy Fresenius Medical Care today, you’d be paying a reasonable price for it. And if you believe Fresenius Medical Care 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. Furthermore, Fresenius Medical Care’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
What does the future of Fresenius Medical Care 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 grow by 94% over the next couple of years, the future seems bright for Fresenius Medical Care. 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 FME’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 FME? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?