Is There Now An Opportunity In Liberty Latin America Ltd. (NASDAQ:LILA)?
While Liberty Latin America Ltd. (NASDAQ:LILA) might not be the most widely known stock at the moment, it saw a significant share price rise of over 20% in the past couple of months on the NASDAQGS. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s take a look at Liberty Latin America’s outlook and value based on the most recent financial data to see if the opportunity still exists.
See our latest analysis for Liberty Latin America
What's The Opportunity In Liberty Latin America?
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 Liberty Latin America’s ratio of 9.81x is trading slightly below its industry peers’ ratio of 10.79x, which means if you buy Liberty Latin America today, you’d be paying a decent price for it. And if you believe Liberty Latin America 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. So, is there another chance to buy low in the future? Given that Liberty Latin 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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Liberty Latin America look like?
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. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Liberty Latin America, at least in the near future.
What This Means For You
Are you a shareholder? LILA seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on LILA, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on LILA for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystallize your views on LILA should the price fluctuate below the industry PE ratio.
So while earnings quality is important, it's equally important to consider the risks facing Liberty Latin America at this point in time. For example, Liberty Latin America has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.
If you are no longer interested in Liberty Latin America, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
