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Is It Time To Consider Buying HeidelbergCement AG (FRA:HEI)?

Simply Wall St

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Let's talk about the popular HeidelbergCement AG (FRA:HEI). The company's shares received a lot of attention from a substantial price movement on the DB over the last few months, increasing to €73.04 at one point, and dropping to the lows of €62.4. 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 HeidelbergCement's current trading price of €67.48 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 HeidelbergCement’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for HeidelbergCement

What's the opportunity in HeidelbergCement?

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 11.57x is currently trading slightly below its industry peers’ ratio of 12.17x, which means if you buy HeidelbergCement today, you’d be paying a fair price for it. And if you believe HeidelbergCement should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. Although, there may be an opportunity to buy in the future. This is because HeidelbergCement’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 HeidelbergCement?

DB:HEI Past and Future Earnings, May 29th 2019

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 35% over the next couple of years, the future seems bright for HeidelbergCement. 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? It seems like the market has already priced in HEI’s positive outlook, with shares trading around its fair value. 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 HEI? 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 HEI, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for HEI, 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 HeidelbergCement. You can find everything you need to know about HeidelbergCement in the latest infographic research report. If you are no longer interested in HeidelbergCement, 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 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. Thank you for reading.