Is Lookers plc (LON:LOOK) Potentially Undervalued?

Lookers plc (LON:LOOK), is not the largest company out there, but it saw a significant share price rise of over 20% in the past couple of months on the LSE. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at Lookers’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Lookers

Is Lookers still cheap?

Good news, investors! Lookers is still a bargain right now. My valuation model shows that the intrinsic value for the stock is £1.00, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. Although, there may be another chance to buy again in the future. This is because Lookers’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company's shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Lookers generate?

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. With revenues expected to grow by a double-digit 22% over the next couple of years, the outlook is positive for Lookers. 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? Since LOOK is currently undervalued, 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 undervaluation.

Are you a potential investor? If you’ve been keeping an eye on LOOK 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 LOOK. 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 buy.

So while earnings quality is important, it's equally important to consider the risks facing Lookers at this point in time. You'd be interested to know, that we found 2 warning signs for Lookers and you'll want to know about them.

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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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