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While Eagers Automotive Limited (ASX:APE) might not be the most widely known stock at the moment, it led the ASX gainers with a relatively large price hike in the past couple of weeks. 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. However, could the stock still be trading at a relatively cheap price? 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.
View our latest analysis for Eagers Automotive
Is Eagers Automotive Still Cheap?
According to my valuation model, Eagers Automotive seems to be fairly priced at around 13.22% above my intrinsic value, which means if you buy Eagers Automotive today, you’d be paying a relatively reasonable price for it. And if you believe that the stock is really worth A$12.14, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because Eagers Automotive’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What does the future of Eagers Automotive 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 -13% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Eagers Automotive. This certainty tips the risk-return scale towards higher risk.
What This Means For You
Are you a shareholder? Currently, APE appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to de-risk 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 the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on APE for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on APE should the price fluctuate below its true value.