At RM1.42, Is Bermaz Auto Berhad (KLSE:BAUTO) Worth Looking At Closely?

Bermaz Auto Berhad (KLSE:BAUTO), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the KLSE over the last few months, increasing to RM1.53 at one point, and dropping to the lows of RM1.33. 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 Bermaz Auto Berhad's current trading price of RM1.42 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Bermaz Auto Berhad’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 Bermaz Auto Berhad

What's the opportunity in Bermaz Auto Berhad?

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 Bermaz Auto Berhad’s ratio of 23.6x is trading slightly below its industry peers’ ratio of 26.98x, which means if you buy Bermaz Auto Berhad today, you’d be paying a decent price for it. And if you believe Bermaz Auto Berhad should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Although, there may be an opportunity to buy in the future. This is because Bermaz Auto Berhad’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 does the future of Bermaz Auto Berhad look like?

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 profit expected to more than double over the next couple of years, the future seems bright for Bermaz Auto Berhad. 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? It seems like the market has already priced in BAUTO’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 track record of its management team. Have these factors changed since the last time you looked at BAUTO? 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 an eye on BAUTO, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for BAUTO, 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. Case in point: We've spotted 2 warning signs for Bermaz Auto Berhad you should be aware of.

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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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