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LCI Industries (NYSE:LCII), 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 NYSE. 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 LCI Industries’s outlook and value based on the most recent financial data to see if the opportunity still exists.
Is LCI Industries 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 28.82x is currently trading slightly below its industry peers’ ratio of 31.84x, which means if you buy LCI Industries today, you’d be paying a reasonable price for it. And if you believe LCI Industries 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. Although, there may be an opportunity to buy in the future. This is because LCI Industries’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What kind of growth will LCI Industries generate?
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. In the upcoming year, LCI Industries’s earnings are expected to increase by 60%, 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? It seems like the market has already priced in LCII’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 LCII? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?
Are you a potential investor? If you’ve been keeping an eye on LCII, 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 LCII, 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.
So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, we've discovered 4 warning signs that you should run your eye over to get a better picture of LCI Industries.
If you are no longer interested in LCI Industries, 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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