What Does MotorCycle Holdings Limited's (ASX:MTO) Share Price Indicate?

·3 min read

MotorCycle Holdings Limited (ASX:MTO), is not the largest company out there, but it saw significant share price movement during recent months on the ASX, rising to highs of AU$3.21 and falling to the lows of AU$2.42. 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 MotorCycle Holdings' current trading price of AU$2.42 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 MotorCycle Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for MotorCycle Holdings

Is MotorCycle Holdings still cheap?

The share price seems sensible at the moment according to my price multiple model, where I compare 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 6.31x is currently trading slightly below its industry peers’ ratio of 10.55x, which means if you buy MotorCycle Holdings today, you’d be paying a reasonable price for it. And if you believe MotorCycle Holdings should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Although, there may be an opportunity to buy in the future. This is because MotorCycle Holdings’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.

Can we expect growth from MotorCycle Holdings?

earnings-and-revenue-growth
earnings-and-revenue-growth

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Though in the case of MotorCycle Holdings, it is expected to deliver a negative earnings growth of -8.6%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? MTO seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on MTO, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on MTO for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on MTO should the price fluctuate below the industry PE ratio.

If you'd like to know more about MotorCycle Holdings as a business, it's important to be aware of any risks it's facing. For example, we've found that MotorCycle Holdings has 3 warning signs (1 is potentially serious!) that deserve your attention before going any further with your analysis.

If you are no longer interested in MotorCycle Holdings, 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.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting