Eurocell plc (LON:ECEL), is not the largest company out there, but it saw significant share price movement during recent months on the LSE, rising to highs of UK£1.87 and falling to the lows of UK£1.37. 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 Eurocell's current trading price of UK£1.37 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 Eurocell’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What Is Eurocell Worth?
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. 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 Eurocell’s ratio of 6.8x is trading slightly below its industry peers’ ratio of 10.33x, which means if you buy Eurocell today, you’d be paying a decent price for it. And if you believe that Eurocell 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. Furthermore, Eurocell’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 does the future of Eurocell 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 relatively muted profit growth of 1.8% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Eurocell, at least in the short term.
What This Means For You
Are you a shareholder? It seems like the market has already priced in ECEL’s growth outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at ECEL? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?
Are you a potential investor? If you’ve been keeping an eye on ECEL, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.
So while earnings quality is important, it's equally important to consider the risks facing Eurocell at this point in time. At Simply Wall St, we found 1 warning sign for Eurocell and we think they deserve your attention.
If you are no longer interested in Eurocell, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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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.
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