Franklin Electric Co Inc (NASDAQ:FELE), which is in the machinery business, and is based in United States, saw significant share price volatility over the past couple of months on the NasdaqGS, rising to the highs of $51.05 and falling to the lows of $39.62. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Franklin Electric’s current trading price of $43.57 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 Franklin Electric’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What is Franklin Electric worth?
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 22.83x is currently trading slightly above its industry peers’ ratio of 19.3x, which means if you buy Franklin Electric today, you’d be paying a relatively reasonable price for it. And if you believe Franklin Electric 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 Franklin Electric’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.
Can we expect growth from Franklin Electric?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. With profit expected to grow by 36% over the next couple of years, the future seems bright for Franklin Electric. 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? FELE’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 FELE? Will you have enough conviction to buy should the price fluctuate below the true value?
Are you a potential investor? If you’ve been keeping an eye on FELE, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for FELE, 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.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Franklin Electric. You can find everything you need to know about Franklin Electric in the latest infographic research report. If you are no longer interested in Franklin Electric, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.