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At €8.35, Is SMT Scharf AG (ETR:S4AA) Worth Looking At Closely?

SMT Scharf AG (ETR:S4AA), is not the largest company out there, but it saw significant share price movement during recent months on the XTRA, rising to highs of €9.80 and falling to the lows of €8.35. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether SMT Scharf's current trading price of €8.35 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 SMT Scharf’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for SMT Scharf

What Is SMT Scharf Worth?

Great news for investors – SMT Scharf is still trading at a fairly cheap price according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 5.43x is currently well-below the industry average of 12.25x, meaning that it is trading at a cheaper price relative to its peers. What’s more interesting is that, SMT Scharf’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to move closer to its industry peers, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will SMT Scharf generate?

earnings-and-revenue-growth
earnings-and-revenue-growth

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. Though in the case of SMT Scharf, it is expected to deliver a negative earnings growth of -18%, 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? Although S4AA is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. Consider whether you want to increase your portfolio exposure to S4AA, or whether diversifying into another stock may be a better move for your total risk and return.

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Are you a potential investor? If you’ve been keeping tabs on S4AA for some time, but hesitant on making the leap, I recommend you research further into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

So while earnings quality is important, it's equally important to consider the risks facing SMT Scharf at this point in time. Our analysis shows 3 warning signs for SMT Scharf (1 is potentially serious!) and we strongly recommend you look at them before investing.

If you are no longer interested in SMT Scharf, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.