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Austal Limited (ASX:ASB), is not the largest company out there, but it received a lot of attention from a substantial price movement on the ASX over the last few months, increasing to AU$3.61 at one point, and dropping to the lows of AU$2.66. 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 Austal's current trading price of AU$2.72 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Austal’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for Austal
What is Austal worth?
Good news, investors! Austal is still a bargain right now according to my price multiple model, which compares 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 Austal’s ratio of 10.89x is below its peer average of 17x, which indicates the stock is trading at a lower price compared to the Aerospace & Defense industry. Austal’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
What kind of growth will Austal generate?
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. However, with a negative profit growth of -13% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Austal. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Although ASB is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. Consider whether you want to increase your portfolio exposure to ASB, or whether diversifying into another stock may be a better move for your total risk and return.