Stock Analysis

Is It Time To Consider Buying Linamar Corporation (TSE:LNR)?

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TSX:LNR
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Linamar Corporation (TSE:LNR), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the TSX over the last few months, increasing to CA$83.48 at one point, and dropping to the lows of CA$71.14. 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 Linamar's current trading price of CA$73.13 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 Linamar’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 Linamar

What's the opportunity in Linamar?

Good news, investors! Linamar 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. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Linamar’s ratio of 13.51x is below its peer average of 23.82x, which indicates the stock is trading at a lower price compared to the Auto Components industry. What’s more interesting is that, Linamar’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from Linamar?

earnings-and-revenue-growth
TSX:LNR Earnings and Revenue Growth July 16th 2021

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. Linamar's revenue growth are expected to be in the teens in the upcoming year, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? Since LNR is currently trading below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. With a positive 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 capital structure to consider, which could explain the current price multiple.

Are you a potential investor? If you’ve been keeping an eye on LNR 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 LNR. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed investment decision.

So while earnings quality is important, it's equally important to consider the risks facing Linamar at this point in time. For example, we've found that Linamar has 2 warning signs (1 can't be ignored!) that deserve your attention before going any further with your analysis.

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