In This Article:
Sims Metal Management Limited (ASX:SGM), a metals and mining company based in United States, saw a decent share price growth in the teens level on the ASX over the last few months. 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? Let’s examine Sims Metal Management’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. View our latest analysis for Sims Metal Management
What’s the opportunity in Sims Metal Management?
The stock is currently trading at AU$16.66 on the share market, which means it is overvalued by 93% compared to my intrinsic value of A$8.61. This means that the buying opportunity has probably disappeared for now. Furthermore, Sims Metal Management’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
What does the future of Sims Metal Management 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. However, with a negative profit growth of -2.04% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Sims Metal Management. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? If you believe SGM is currently trading above its value, selling high and buying it back up again when its price falls towards its real value can be profitable. Given the risk from a negative growth outlook, this could be the right time to de-risk your portfolio. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on SGM for a while, now may not be the best time to enter into the stock. Price climbed passed its true value, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Should the price fall in the future, will you be well-informed enough to buy?