MotorCycle Holdings Limited (ASX:MTO), might not be a large cap stock, but it saw significant share price movement during recent months on the ASX, rising to highs of AU$2.73 and falling to the lows of AU$2.35. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether MotorCycle Holdings’ current trading price of AU$2.45 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at MotorCycle Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What is MotorCycle Holdings worth?
According to my valuation model, MotorCycle Holdings seems to be fairly priced at around 6.8% below my intrinsic value, which means if you buy MotorCycle Holdings today, you’d be paying a reasonable price for it. And if you believe the company’s true value is A$2.63, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because MotorCycle Holdings’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 MotorCycle Holdings 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. MotorCycle Holdings’ earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger 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 MTO’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 the stock? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping tabs on MTO, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Keep in mind, when it comes to analysing a stock it’s worth noting the risks involved. Be aware that MotorCycle Holdings is showing 4 warning signs in our investment analysis and 1 of those doesn’t sit too well with us…
If you are no longer interested in MotorCycle Holdings, 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.