Stock Analysis

Is There Now An Opportunity In Motorcar Parts of America, Inc. (NASDAQ:MPAA)?

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NasdaqGS:MPAA
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Motorcar Parts of America, Inc. (NASDAQ:MPAA), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the NASDAQGS. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at Motorcar Parts of America’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for Motorcar Parts of America

What's the opportunity in Motorcar Parts of America?

Motorcar Parts of America appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. 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 Motorcar Parts of America’s ratio of 36.26x is above its peer average of 29.69x, which suggests the stock is trading at a higher price compared to the Auto Components industry. But, is there another opportunity to buy low in the future? Given that Motorcar Parts of America’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Motorcar Parts of America generate?

earnings-and-revenue-growth
NasdaqGS:MPAA Earnings and Revenue Growth May 10th 2021

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. 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 profit expected to more than double over the next couple of years, the future seems bright for Motorcar Parts of America. 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 well and truly priced in MPAA’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe MPAA should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on MPAA for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for MPAA, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

It can be quite valuable to consider what analysts expect for Motorcar Parts of America from their most recent forecasts. At Simply Wall St, we have the analysts estimates which you can view by clicking here.

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What are the risks and opportunities for Motorcar Parts of America?

Motorcar Parts of America, Inc. manufactures, remanufactures, and distributes heavy-duty truck, industrial, marine, and agricultural application replacement parts.

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Rewards

  • Earnings are forecast to grow 152.26% per year

Risks

  • Interest payments are not well covered by earnings

  • Significant insider selling over the past 3 months

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Motorcar Parts of America

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