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Should You Investigate Southern Cross Electrical Engineering Limited (ASX:SXE) At AU$0.57?

While Southern Cross Electrical Engineering Limited (ASX:SXE) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price increase on the ASX over the last few months. 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? Today I will analyse the most recent data on Southern Cross Electrical Engineering’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Southern Cross Electrical Engineering

Is Southern Cross Electrical Engineering still cheap?

Great news for investors – Southern Cross Electrical Engineering 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. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Southern Cross Electrical Engineering’s ratio of 12.79x is below its peer average of 18.55x, which indicates the stock is trading at a lower price compared to the Construction industry. Another thing to keep in mind is that Southern Cross Electrical Engineering’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its industry peers, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.

Can we expect growth from Southern Cross Electrical Engineering?

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. With profit expected to grow by 91% over the next couple of years, the future seems bright for Southern Cross Electrical Engineering. 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? Since SXE is currently below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. With an optimistic outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as financial health to consider, which could explain the current price multiple.

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Are you a potential investor? If you’ve been keeping an eye on SXE for a while, now might be the time to make a leap. Its prosperous future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy SXE. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed assessment.

If you'd like to know more about Southern Cross Electrical Engineering as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 3 warning signs with Southern Cross Electrical Engineering, and understanding them should be part of your investment process.

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

This article by Simply Wall St is general in nature. 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.

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