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Is There Now An Opportunity In Somfy SA (EPA:SO)?

Simply Wall St

Somfy SA (EPA:SO), which is in the electrical business, and is based in France, saw a double-digit share price rise of over 10% in the past couple of months on the ENXTPA. 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 Somfy’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Somfy

What's the opportunity in Somfy?

The stock seems fairly valued at the moment according to 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 19.8x is currently trading slightly above its industry peers’ ratio of 16.38x, which means if you buy Somfy today, you’d be paying a relatively fair price for it. And if you believe that Somfy should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. Furthermore, Somfy’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.

Can we expect growth from Somfy?

ENXTPA:SO Past and Future Earnings, November 23rd 2019

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 a double-digit 16% over the next couple of years, the outlook is positive for Somfy. 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? SO’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. 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 SO? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping tabs on SO, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for SO, which means it’s worth further examining other factors such as the strength of its balance sheet, 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 Somfy. You can find everything you need to know about Somfy in the latest infographic research report. If you are no longer interested in Somfy, 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 editorial-team@simplywallst.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.

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. Thank you for reading.