Motorcar Parts of America, Inc. (NASDAQ:MPAA) may not be a large stock company, but the NASDAQGS stock price is up more than 20% in the last couple of months. Less covered, small caps are more prone to mispricing because the public lacks information, which can be good. So could the stock still be trading below its intrinsic value? Today, I’ll analyze the latest data on Motorcar Parts of America’s outlook and valuation to see if the opportunity still exists.
Check out our latest analysis on Motorcar Parts of America
Are American car parts still cheap?
According to my multi-price model, which compares the company’s price-to-earnings ratio to the industry average, the stock currently looks expensive. In this case, I have used the price-to-earnings (PE) ratio, given that there is not enough information to reliably predict a stock’s cash flows. I find that Motorcar Parts of America trades at a multiple of 58.37 times its peer average of 20.05 times, indicating that the stock is trading at a premium relative to the auto components industry. If you like the stock, you may want to keep an eye out for potential price drops in the future. Given that Motorcar Parts of America is quite volatile (ie, its price changes are magnified relative to the rest of the market), this could mean that the price could drop, giving us another opportunity to buy in the future. This is based on its high beta, which is a good indicator of stock price volatility.
Can we expect growth from Motorcar Parts of America?
Investors looking to grow their portfolio may want to consider a company’s prospects before buying its stock. Buying a great company with a solid outlook at a cheap price is always a good investment, so let’s also look at the company’s future prospects. Profits are expected to more than double in the near term, and the future looks very bright for Motorcar Parts of America. The stock appears to have more cash flow and should have a higher stock valuation.
What it means to you
Are you a shareholder? The market appears to have well and truly priced in MPAA’s positive outlook, with shares trading above the industry multiple. However, this raises another question – is now the right time to sell? If you believe that MPAA should trade below its current price, selling at a high price and repurchasing when its price declines against the industry’s PE ratio can be profitable. But before you make that decision, check if its fundamentals have changed.
Are you a potential investor? If you’ve been following the MPAA for a while, now might not be the best time to get in on the action. The price has outperformed its industry peers, which means there will likely be no more mispricing gains. Still, the MPAA’s positive outlook is encouraging, which means it’s worth looking into other factors to take advantage of the next price drop.
With that being said, if you want to do more business analysis, it’s important to be aware of the risks involved. Note that Motorcar Parts of America is displayed 3 warning signs in our investment analysis and one of them doesn’t work for us…
If you are no longer interested in Motorcar Parts of America, you can use our free platform to view our list of over 50 other stocks with high growth potential.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using an objective methodology only, and our articles are not intended as financial advice. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our goal is to provide you with long-term focused analysis based on fundamentals. Note that our analysis may not take into account recent company announcements or qualitative materials. Simply Wall St has no position in any of the listed stocks.
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