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Is It Time To Consider Buying Lithia Motors, Inc. (NYSE:LAD)?

Simply Wall St

Lithia Motors, Inc. (NYSE:LAD), which is in the specialty retail business, and is based in United States, received a lot of attention from a substantial price increase on the NYSE over the last few months. 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. However, could the stock still be trading at a relatively cheap price? Let’s take a look at Lithia Motors’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Lithia Motors

What is Lithia Motors worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 19.43% 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 the company’s true value is $130.65, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because Lithia Motors’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 Lithia Motors generate?

NYSE:LAD Past and Future Earnings, October 28th 2019

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. With profit expected to grow by a double-digit 16% over the next couple of years, the outlook is positive for Lithia Motors. 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? LAD’s optimistic future growth appears to have been factored into the current share price, 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 an eye on LAD, now may not be the most advantageous 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.

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 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. Thank you for reading.