Is Now An Opportune Moment To Examine Eagers Automotive Limited (ASX:APE)?

Eagers Automotive Limited (ASX:APE), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the ASX over the last few months, increasing to AU$17.34 at one point, and dropping to the lows of AU$14.45. 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$15.07 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 Eagers Automotive’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Eagers Automotive

Is Eagers Automotive still cheap?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 19.36% 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 the company’s true value is A$12.63, 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.

Can we expect growth from Eagers Automotive?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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? 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 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 crystalize your views on APE should the price fluctuate below its true value.

If you'd like to know more about Eagers Automotive as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 4 warning signs for Eagers Automotive you should be mindful of and 1 of them is significant.

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.

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.

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