Banco de Sabadell, S.A. (BME:SAB), operating in the financial services industry based in Spain, received a lot of attention from a substantial price movement on the BME over the last few months, increasing to €0.95 at one point, and dropping to the lows of €0.35. 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 Banco de Sabadell's current trading price of €0.35 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 Banco de Sabadell’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Banco de Sabadell still cheap?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 11% below my intrinsic value, which means if you buy Banco de Sabadell today, you’d be paying a reasonable price for it. And if you believe the company’s true value is €0.40, then there isn’t much 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 Banco de Sabadell’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 Banco de Sabadell?
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. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Banco de Sabadell, at least in the near future.
What this means for you:
Are you a shareholder? SAB seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on SAB for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on SAB should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Banco de Sabadell. You can find everything you need to know about Banco de Sabadell in the latest infographic research report. If you are no longer interested in Banco de Sabadell, 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 email@example.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.
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