Is There Now An Opportunity In Linamar Corporation (TSE:LNR)?

By
Simply Wall St
Published
April 21, 2022
TSX:LNR
Source: Shutterstock

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$81.16 at one point, and dropping to the lows of CA$49.94. 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$51.53 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.

See our latest analysis for Linamar

What is Linamar worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 14.06% above my intrinsic value, which means if you buy Linamar today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is CA$45.18, 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 Linamar’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.

What kind of growth will Linamar generate?

earnings-and-revenue-growth
TSX:LNR Earnings and Revenue Growth April 21st 2022

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. With revenues expected to grow by a double-digit 19% over the next couple of years, the outlook is positive for Linamar. If the level of expenses is able to be maintained, it looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? LNR’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. 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 the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping tabs on LNR, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you'd like to know more about Linamar as a business, it's important to be aware of any risks it's facing. For instance, we've identified 2 warning signs for Linamar (1 shouldn't be ignored) you should be familiar with.

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.

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