Kontron (XTRA:KTN) Wins European 5G Car Deal On An Undervalued Looking Multiple

Kontron (XTRA:KTN) has attracted fresh investor attention after securing a European car manufacturer as a customer for its 5G Automotive Network Access Devices, tying the stock story more closely to connected vehicle infrastructure.

See our latest analysis for Kontron.

Alongside the new 5G Automotive NAD contract and the extended rail services agreement, Kontron's 90 day share price return of 12.46% suggests momentum has picked up, even though the 1 year total shareholder return declined 15.75% and the 3 year total shareholder return gained 25.77%.

If this kind of connectivity theme interests you, it may be a good moment to scan the wider market using the 35 power grid technology and infrastructure stocks

Kontron’s recent contract wins and share price bounce present a clear choice. Is it more sensible to wait for a pullback, or does the current valuation already reflect a reasonable entry after last year’s decline?

Price-to-Earnings of 11.1x: Is it justified for Kontron?

Kontron is currently trading at a P/E of 11.1x, and based on several checks it screens as undervalued relative to both peers and an estimated fair P/E level, even after the recent share price rebound to €23.64.

The P/E ratio compares the current share price with earnings per share, so it effectively tells you how much the market is paying for each euro of current earnings. For a company like Kontron, which operates across IoT hardware, software and solutions, this is a commonly used yardstick because the business already generates earnings rather than just revenue.

Several data points point in the same direction. Kontron is described as trading at good value compared to peers and the wider European IT industry, with its 11.1x P/E sitting well below the peer average of 22.9x and the European IT industry average of 17.7x. It also sits below an estimated fair P/E of 16.7x, which is a level the market could move towards if sentiment and earnings expectations stay aligned with that fair ratio framework.

When combined with the indication that the stock trades at a 45.6% discount to one estimate of fair value and below an internal future cash flow value of €43.44, the current P/E suggests the market is pricing Kontron’s earnings more cautiously than those of similar IT companies, despite a track record of earnings growth and higher net profit margins than last year. Explore the SWS fair ratio for Kontron

Result: Price-to-Earnings of 11.1x (UNDERVALUED)

However, Kontron’s story can change quickly if new contracts disappoint, or if the wider IT spending cycle weakens and keeps the P/E gap in place.

Find out about the key risks to this Kontron narrative.

Another View on Kontron’s Valuation

Alongside the P/E checks, Kontron also screens as undervalued on an SWS DCF model, which puts future cash flow value at €43.44 per share versus the current €23.64. That is a wide gap. The question for you is whether the cash flow assumptions behind that value feel realistic.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Kontron for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 250 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Sentiment on Kontron is mixed, with both concerns and reasons for optimism highlighted. Move quickly and review the same data to build your own view using the 5 key rewards and 2 important warning signs

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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