Amphenol Corporation (NYSE:APH) received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to $99.11 at one point, and dropping to the lows of $84.39. 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 Amphenol's current trading price of $88.2 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Amphenol’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in Amphenol?
According to my relative valuation model, the stock seems to be currently fairly priced. 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 Amphenol’s ratio of 21.79x is trading slightly above its industry peers’ ratio of 18.74x, which means if you buy Amphenol today, you’d be paying a relatively fair price for it. And if you believe Amphenol should be trading in this range, 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 Amphenol’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 Amphenol 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. 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. However, with a negative profit growth of -4.2% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for Amphenol. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Currently, APH 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 beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on APH, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on APH for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, 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 gel your views on APH 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 Amphenol. You can find everything you need to know about Amphenol in the latest infographic research report. If you are no longer interested in Amphenol, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Thank you for reading.