Undervalued Stocks on the German Stock Exchange
The German stock market has a reputation for being expensive and slow-moving, yet today it is still possible to find companies trading well below their historical and sector valuations. The reasons vary: concerns about new competition, cyclical pessimism, or disappointment with growth. We looked at three stocks where a low price meets a functioning business.
Key points
Three well-known German companies are trading at surprisingly low valuations. Analysts, however, see more than 45% upside for one of them, while virtually no upside remains for another.
One of Europe’s largest companies hides a business within its holding structure that the market values at less than three times operating profit. Yet it generates billions of euros in free cash flow and is buying back its own shares on a massive scale.
One company’s shares are trading more than 60% below their level at the end of 2021. Its revenue is growing by more than 20%, but after adjusting for a major acquisition, actual growth is almost zero.
The world’s largest chemical company is raising its profitability outlook, selling divisions worth billions, and paying a dividend of more than 4%. Yet its shares are falling after results, and analysts remain skeptical.
Common screeners show this trio with a P/E above 70, a free cash flow yield above 24%, or accounting profits worth billions. But all these figures can mislead investors. Which stock is genuinely undervalued, and where is the discount only apparent?
European stocks are benefiting this year from capital shifting away from the expensive US technology sector. In October alone, the Nasdaq 100 lost almost 7%, while value stocks and defensive sectors held their ground. This trend brings back a question investors have rarely asked themselves in recent years: where can you find quality businesses at a reasonable price?
The German stock exchange is an interesting place to look. The DAX index is concentrated in industrials, chemicals, telecommunications, and consumer companies—in other words, sectors the market long overlooked in the age of artificial intelligence. Many of these companies are also in the midst of restructuring, spin-offs, or acquisition integrations. These transitional phases often create a gap between what a company actually earns and what standard screeners show.
A low P/E or high free cash flow yield alone is not enough. In the case of holding structures, after major divestitures, or following one-off impairments, standard metrics can lead to wrong conclusions. That is why, for each company, we will look not only at whether it is cheap, but especially why it is cheap and what would need to happen for the discount to close. Which companies are they?