Is There Now An Opportunity In Eagers Automotive Limited (ASX:APE)?
Eagers Automotive Limited (ASX:APE), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the ASX. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s take a look at Eagers Automotive’s outlook and value based on the most recent financial data to see if the opportunity still exists.
See our latest analysis for Eagers Automotive
Is Eagers Automotive still cheap?
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. 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 20.08x is currently trading slightly above its industry peers’ ratio of 18.16x, which means if you buy Eagers Automotive today, you’d be paying a relatively sensible price for it. And if you believe that Eagers Automotive should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. So, is there another chance to buy low in the future? Given that Eagers Automotive’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.
What kind of growth will Eagers Automotive generate?
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 a relatively muted profit growth of 9.3% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Eagers Automotive, at least in the short term.
What this means for you:
Are you a shareholder? It seems like the market has already priced in APE’s growth outlook, 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 APE? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?
Are you a potential investor? If you’ve been keeping tabs on APE, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.
If you want to dive deeper into Eagers Automotive, you'd also look into what risks it is currently facing. For instance, we've identified 3 warning signs for Eagers Automotive (1 is a bit unpleasant) you should be familiar with.
If you are no longer interested in Eagers Automotive, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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. 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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