Is It Time To Consider Buying Magellan Aerospace Corporation (TSE:MAL)?

Magellan Aerospace Corporation (TSE:MAL), is not the largest company out there, but it received a lot of attention from a substantial price increase on the TSX over the last few months. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine Magellan Aerospace’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Magellan Aerospace

Is Magellan Aerospace still cheap?

According to my valuation model, Magellan Aerospace seems to be fairly priced at around 18% below my intrinsic value, which means if you buy Magellan Aerospace today, you’d be paying a fair price for it. And if you believe that the stock is really worth CA$12.85, then there’s not much of an upside to gain from mispricing. Is there another opportunity to buy low in the future? Since Magellan Aerospace’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 kind of growth will Magellan Aerospace 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. Magellan Aerospace's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? MAL’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 conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping an eye on MAL, now may not be the most advantageous 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.

So while earnings quality is important, it's equally important to consider the risks facing Magellan Aerospace at this point in time. Every company has risks, and we've spotted 3 warning signs for Magellan Aerospace you should know about.

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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.
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