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While Axalta Coating Systems Ltd. (NYSE:AXTA) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the NYSE, rising to highs of US$33.52 and falling to the lows of US$30.12. 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 Axalta Coating Systems' current trading price of US$31.39 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Axalta Coating Systems’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 Axalta Coating Systems?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 Axalta Coating Systems’s ratio of 25.56x is trading slightly above its industry peers’ ratio of 21.1x, which means if you buy Axalta Coating Systems today, you’d be paying a relatively sensible price for it. And if you believe Axalta Coating Systems should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Although, there may be an opportunity to buy in the future. This is because Axalta Coating Systems’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
Can we expect growth from Axalta Coating Systems?
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. Axalta Coating Systems' earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has already priced in AXTA’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at AXTA? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?
Are you a potential investor? If you’ve been keeping tabs on AXTA, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for AXTA, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
If you want to dive deeper into Axalta Coating Systems, you'd also look into what risks it is currently facing. For example, we've found that Axalta Coating Systems has 2 warning signs (1 is concerning!) that deserve your attention before going any further with your analysis.
If you are no longer interested in Axalta Coating Systems, 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.