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Carmat SA (ENXTPA:ALCAR), a medical equipment company based in France, saw significant share price volatility over the past couple of months on the ENXTPA, rising to the highs of €23.7 and falling to the lows of €19.86. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Carmat’s current trading price of €20.2 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Carmat’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. View our latest analysis for Carmat
What’s the opportunity in Carmat?
The stock seems fairly valued at the moment according to my relative valuation model. I’ve used the price-to-book ratio in this instance because there’s not enough visibility to forecast its cash flows, and its earnings doesn’t seem to reflect its true value. The stock’s ratio of 4.21x is currently trading slightly above its industry peers’ ratio of 3.07x, which means if you buy Carmat today, you’d be paying a relatively reasonable price for it. And if you believe that Carmat should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. Furthermore, Carmat’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 kind of growth will Carmat generate?
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 Carmat, it is expected to deliver a negative earnings growth of -15.86%, 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, ALCAR appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on ALCAR, take a look at whether its fundamentals have changed.