While carsales.com Ltd (ASX:CAR) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the ASX, rising to highs of AU$21.99 and falling to the lows of AU$18.37. 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 carsales.com's current trading price of AU$19.67 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at carsales.com’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What is carsales.com worth?
According to my valuation model, carsales.com seems to be fairly priced at around 6.1% below my intrinsic value, which means if you buy carsales.com today, you’d be paying a reasonable price for it. And if you believe the company’s true value is A$20.95, then there isn’t much room for the share price grow beyond what it’s currently trading. Furthermore, carsales.com’s low beta implies that the stock is less volatile than the wider market.
What does the future of carsales.com look like?
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 78% over the next couple of years, the future seems bright for carsales.com. 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? CAR’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 track record of its management team. 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 CAR, 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 further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. You'd be interested to know, that we found 1 warning sign for carsales.com and you'll want to know about this.
If you are no longer interested in carsales.com, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.