AB SKF (publ) (STO:SKF B), which is in the machinery business, and is based in Sweden, received a lot of attention from a substantial price increase on the OM 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 take a look at AB SKF’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What is AB SKF worth?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 1.81% above my intrinsic value, which means if you buy AB SKF today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is SEK189.86, then there isn’t really any room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that AB SKF’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of AB SKF look like?
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. However, with a negative profit growth of -5.4% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for AB SKF. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? SKF B seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on SKF B for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on SKF B should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on AB SKF. You can find everything you need to know about AB SKF in the latest infographic research report. If you are no longer interested in AB SKF, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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