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While Progress-Werk Oberkirch AG (ETR:PWO) might not be the most widely known stock at the moment, it saw a significant share price rise of over 20% in the past couple of months on the XTRA. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Progress-Werk Oberkirch’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
View our latest analysis for Progress-Werk Oberkirch
Is Progress-Werk Oberkirch Still Cheap?
According to my 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. 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 5.18x is currently trading slightly below its industry peers’ ratio of 8.5x, which means if you buy Progress-Werk Oberkirch today, you’d be paying a reasonable price for it. And if you believe that Progress-Werk Oberkirch 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. Although, there may be an opportunity to buy in the future. This is because Progress-Werk Oberkirch’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What does the future of Progress-Werk Oberkirch 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. 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. Though in the case of Progress-Werk Oberkirch, it is expected to deliver a negative earnings growth of -3.5%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What This Means For You
Are you a shareholder? Currently, PWO appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on PWO, take a look at whether its fundamentals have changed.