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When Should You Buy Standard Motor Products, Inc. (NYSE:SMP)?

Simply Wall St

Standard Motor Products, Inc. (NYSE:SMP), which is in the auto components business, and is based in United States, saw a decent share price growth in the teens level on the NYSE over the last few months. Less-covered, small caps sees 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? Today I will analyse the most recent data on Standard Motor Products’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Standard Motor Products

Is Standard Motor Products still cheap?

According to my relative valuation model, the stock seems to be currently fairly priced. 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 Standard Motor Products’s ratio of 17.17x is trading slightly above its industry peers’ ratio of 16.21x, which means if you buy Standard Motor Products today, you’d be paying a relatively fair price for it. And if you believe that Standard Motor Products should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. So, is there another chance to buy low in the future? Given that Standard Motor Products’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Standard Motor Products?

NYSE:SMP Past and Future Earnings, October 22nd 2019
NYSE:SMP Past and Future Earnings, October 22nd 2019

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. Standard Motor Products’s earnings growth are expected to be in the teens in the upcoming year, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has already priced in SMP’s positive outlook, 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 SMP? Will you have enough conviction to buy should the price fluctuate below the true value?

Are you a potential investor? If you’ve been keeping tabs on SMP, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for SMP, 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.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Standard Motor Products. You can find everything you need to know about Standard Motor Products in the latest infographic research report. If you are no longer interested in Standard Motor Products, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.