Let's talk about the popular Ferrari N.V. (NYSE:RACE). The company's shares led the NYSE gainers with a relatively large price hike in the past couple of weeks. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s take a look at Ferrari’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What's the opportunity in Ferrari?
Ferrari is currently overpriced based on my relative valuation model. 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 34.27x is currently well-above the industry average of 12.44x, meaning that it is trading at a more expensive price relative to its peers. But, is there another opportunity to buy low in the future? Since Ferrari’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
Can we expect growth from Ferrari?
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 relatively muted profit growth of 4.1% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Ferrari, at least in the short term.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in RACE’s outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe RACE should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on RACE for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. 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.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Ferrari. You can find everything you need to know about Ferrari in the latest infographic research report. If you are no longer interested in Ferrari, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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. Thank you for reading.