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Is Now The Time To Look At Buying Elmos Semiconductor AG (ETR:ELG)?

Simply Wall St
·4-min read

Elmos Semiconductor AG (ETR:ELG), which is in the semiconductor business, and is based in Germany, saw a double-digit share price rise of over 10% in the past couple of months on the XTRA. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s examine Elmos Semiconductor’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Elmos Semiconductor

What is Elmos Semiconductor worth?

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 Elmos Semiconductor’s ratio of 20.62x is trading slightly below its industry peers’ ratio of 21.1x, which means if you buy Elmos Semiconductor today, you’d be paying a reasonable price for it. And if you believe that Elmos Semiconductor should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, it seems like Elmos Semiconductor’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will Elmos Semiconductor generate?

XTRA:ELG Past and Future Earnings April 16th 2020
XTRA:ELG Past and Future Earnings April 16th 2020

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. 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. Elmos Semiconductor’s earnings over the next few years are expected to increase by 45%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? ELG’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. 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 ELG? 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 an eye on ELG, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for ELG, 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 Elmos Semiconductor. You can find everything you need to know about Elmos Semiconductor in the latest infographic research report. If you are no longer interested in Elmos Semiconductor, 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.