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What Does AA plc's (LON:AA.) Share Price Indicate?

AA plc (LON:AA.), which is in the consumer services business, and is based in United Kingdom, received a lot of attention from a substantial price increase on the LSE over the last few months. 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? Today I will analyse the most recent data on AA’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for AA

What's the opportunity in AA?

Good news, investors! AA is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio to the industry average. 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 1.29x is currently well-below the industry average of 17.42x, meaning that it is trading at a cheaper price relative to its peers. What’s more interesting is that, AA’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. 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 AA look like?

LSE:AA. Past and Future Earnings May 16th 2020
LSE:AA. Past and Future Earnings May 16th 2020

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. 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. With profit expected to grow by a double-digit 18% over the next couple of years, the outlook is positive for AA. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? Since AA. is currently below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. With an optimistic outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as financial health to consider, which could explain the current price multiple.

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Are you a potential investor? If you’ve been keeping an eye on AA. for a while, now might be the time to make a leap. Its buoyant future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy AA.. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed assessment.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on AA. You can find everything you need to know about AA in the latest infographic research report. If you are no longer interested in AA, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

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. Thank you for reading.