Lithia Motors, Inc. (NYSE:LAD), which is in the specialty retail business, and is based in United States, led the NYSE gainers with a relatively large price hike in the past couple of weeks. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s examine Lithia Motors’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What’s the opportunity in Lithia Motors?
According to my valuation model, Lithia Motors seems to be fairly priced at around 5.57% above my intrinsic value, which means if you buy Lithia Motors today, you’d be paying a relatively fair price for it. And if you believe that the stock is really worth $84.42, 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 Lithia Motors’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 kind of growth will Lithia Motors generate?
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. Though in the case of Lithia Motors, it is expected to deliver a negative earnings growth of -2.9%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? Currently, LAD appears to be trading around its fair value, 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 beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on LAD for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, 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 gel your views on LAD should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Lithia Motors. You can find everything you need to know about Lithia Motors in the latest infographic research report. If you are no longer interested in Lithia Motors, 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 email@example.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.