Stock Analysis

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

  •  Updated
TSX:LNR
Source: Shutterstock

While Linamar Corporation (TSE:LNR) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the TSX, rising to highs of CA$75.46 and falling to the lows of CA$63.61. 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$69.21 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.

Check out our latest analysis for Linamar

What is Linamar worth?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 9.06x is trading slightly below its industry peers’ ratio of 9.26x, which means if you buy Linamar today, you’d be paying a decent price for it. And if you believe that Linamar should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Is there another opportunity to buy low in the future? Since Linamar’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. 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.

What does the future of Linamar look like?

earnings-and-revenue-growth
TSX:LNR Earnings and Revenue Growth October 15th 2021

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. Linamar's revenue growth are expected to be in the teens in the upcoming years, 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? It seems like the market has already priced in LNR’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at LNR? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on LNR, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for LNR, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, Linamar has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

If you are no longer interested in Linamar, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Valuation is complex, but we're helping make it simple.

Find out whether Linamar is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis