Auckland International Airport Limited (NZSE:AIA), a infrastructure company based in New Zealand, saw significant share price volatility over the past couple of months on the NZSE, rising to the highs of NZ$6.74 and falling to the lows of NZ$6.08. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Auckland International Airport’s current trading price of NZ$6.61 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Auckland International Airport’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 Auckland International Airport
What is Auckland International Airport worth?
According to my relative valuation model, the stock seems to be currently fairly priced. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Auckland International Airport’s ratio of 23.6x is trading slightly above its industry peers’ ratio of 20.6x, which means if you buy Auckland International Airport today, you’d be paying a relatively fair price for it. And if you believe that Auckland International Airport should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. Furthermore, it seems like Auckland International Airport’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.
What does the future of Auckland International Airport look like?
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. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a negative profit growth of -18.80% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Auckland International Airport. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Auckland International Airport seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on Auckland International Airport, take a look at whether its fundamentals have changed.