While National Tyre & Wheel Limited (ASX:NTD) 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 small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine National Tyre & Wheel’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What's the opportunity in National Tyre & Wheel?
Good news, investors! National Tyre & Wheel is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 8.55x is currently well-below the industry average of 18.97x, meaning that it is trading at a cheaper price relative to its peers. However, given that National Tyre & Wheel’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 National Tyre & Wheel 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. In National Tyre & Wheel's case, its revenues over the next few years are expected to grow by 61%, indicating a highly optimistic future ahead. If expense does not increase by the same rate, or higher, this top line growth should lead to stronger cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? Since NTD is currently trading below the industry PE ratio, it may be a great time to increase your holdings in the stock. With an optimistic outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as financial health to consider, which could explain the current price multiple.
Are you a potential investor? If you’ve been keeping an eye on NTD for a while, now might be the time to enter the stock. Its prosperous future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy NTD. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed assessment.
If you'd like to know more about National Tyre & Wheel 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 National Tyre & Wheel you should be aware of.
If you are no longer interested in National Tyre & Wheel, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
If you’re looking to trade National Tyre & Wheel, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted
This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.