AA plc (LON:AA.), which is in the consumer services business, and is based in United Kingdom, saw significant share price movement during recent months on the LSE, rising to highs of UK£0.69 and falling to the lows of UK£0.45. 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 AA's current trading price of UK£0.46 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 AA’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is AA still cheap?
Good news, investors! AA is still a bargain right now. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that AA’s ratio of 5.27x is below its peer average of 13.71x, which suggests the stock is undervalued compared to the Consumer Services industry. AA’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
What kind of growth will AA 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. However, with a relatively muted revenue growth of 6.6% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for AA, at least in the short term.
What this means for you:
Are you a shareholder? Even though growth is relatively muted, since AA. is currently undervalued, it may be a great time to increase your holdings in the stock. However, there are also other factors such as capital structure to consider, which could explain the current undervaluation.
Are you a potential investor? If you’ve been keeping an eye on AA. for a while, now might be the time to enter the stock. Its future 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 strength of its balance sheet, in order to make a well-informed buy.
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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.