At AU$12.38, Is It Time To Put Eagers Automotive Limited (ASX:APE) On Your Watch List?

While Eagers Automotive Limited (ASX:APE) might not be the most widely known stock at the moment, it saw a decent share price growth in the teens level on the ASX over the last few months. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s examine Eagers Automotive’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Eagers Automotive

What Is Eagers Automotive Worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 2.83% above my intrinsic value, which means if you buy Eagers Automotive today, you’d be paying a relatively fair price for it. And if you believe that the stock is really worth A$12.04, then there isn’t really any room for the share price grow beyond what it’s currently trading. 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?

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 -14% 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 reduce the risk in your portfolio. Is your current exposure to the stock beneficial 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 advantageous time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, 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.

If you want to dive deeper into Eagers Automotive, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 4 warning signs for Eagers Automotive (of which 1 makes us a bit uncomfortable!) you should know about.

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.

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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.