At AU$9.21, Is Eagers Automotive Limited (ASX:APE) Worth Looking At Closely?

Eagers Automotive Limited (ASX:APE), 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$14.50 at one point, and dropping to the lows of AU$9.21. 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 Eagers Automotive's current trading price of AU$9.21 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 Eagers Automotive’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 Eagers Automotive

What's the opportunity in Eagers Automotive?

Great news for investors – Eagers Automotive is still trading at a fairly cheap price. My valuation model shows that the intrinsic value for the stock is A$13.96, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. However, 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 another chance to buy in the future. 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. 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 an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Eagers Automotive, at least in the near future.

What this means for you:

Are you a shareholder? Although APE is currently undervalued, the negative outlook does bring on some uncertainty, which equates to higher risk. Consider whether you want to increase your portfolio exposure to APE, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on APE for a while, but hesitant on making the leap, I recommend you research further into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

So while earnings quality is important, it's equally important to consider the risks facing Eagers Automotive at this point in time. 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.