Alliance Aviation Services Limited (ASX:AQZ), is not the largest company out there, but it saw a significant share price rise of over 20% in the past couple of months on the ASX. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s examine Alliance Aviation Services’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What's the opportunity in Alliance Aviation Services?
Alliance Aviation Services 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 Alliance Aviation Services’s ratio of 16.96x is above its peer average of 9.66x, which suggests the stock is trading at a higher price compared to the Airlines industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since Alliance Aviation Services’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What does the future of Alliance Aviation Services look like?
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. Alliance Aviation Services’s earnings over the next few years are expected to increase by 65%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? AQZ’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe AQZ 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 an eye on AQZ for a while, 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 positive outlook is encouraging for AQZ, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
If you want to dive deeper into Alliance Aviation Services, you'd also look into what risks it is currently facing. Case in point: We've spotted 3 warning signs for Alliance Aviation Services you should be aware of.
If you are no longer interested in Alliance Aviation Services, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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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