Is It Time To Consider Buying Auckland International Airport Limited (NZSE:AIA)?

While Auckland International Airport Limited (NZSE:AIA) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the NZSE, rising to highs of NZ$8.20 and falling to the lows of NZ$6.70. 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 Auckland International Airport's current trading price of NZ$6.70 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 Auckland International Airport’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 Auckland International Airport

Is Auckland International Airport still cheap?

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. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 44.2x is currently trading slightly above its industry peers’ ratio of 40.12x, which means if you buy Auckland International Airport today, you’d be paying a relatively reasonable price for it. And if you believe that Auckland International Airport should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, Auckland International Airport’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

Can we expect growth from Auckland International Airport?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 Auckland International Airport. 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 AIA’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 AIA? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on AIA, 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 AIA, 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.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. While conducting our analysis, we found that Auckland International Airport has 2 warning signs and it would be unwise to ignore 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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