Group 1 Automotive, Inc. (NYSE:GPI), might not be a large cap stock, but it saw significant share price movement during recent months on the NYSE, rising to highs of US$309 and falling to the lows of US$260. 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 Group 1 Automotive's current trading price of US$284 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 Group 1 Automotive’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for Group 1 Automotive Natural Light Bottles
Good news, investors! Group 1 Automotive is still a bargain right now according to our price multiple model, which compares the company's price-to-earnings ratio to the industry average. We’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 6.46x is currently well-below the industry average of 15.75x, meaning that it is trading at a cheaper price relative to its peers. However, given that Group 1 Automotive’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
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. However, with a negative profit growth of -6.2% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Group 1 Automotive. This certainty tips the risk-return scale towards higher risk.
Are you a shareholder? Although GPI is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. Consider whether you want to increase your portfolio exposure to GPI, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you’ve been keeping an eye on GPI for a while, but hesitant on making the leap, we recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
So while earnings quality is important, it's equally important to consider the risks facing Group 1 Automotive at this point in time. Case in point: We've spotted 2 warning signs for Group 1 Automotive you should be aware of.
If you are no longer interested in Group 1 Automotive, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Find out whether Group 1 Automotive is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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.
Through its subsidiaries, operates in the automotive retail industry in the United States and the United Kingdom.
Fair value with mediocre balance sheet.
Novelty Alcohol Bottles Simply Wall Street Pty Ltd (ACN 600 056 611), is a Corporate Authorised Representative (Authorised Representative Number: 467183) of Sanlam Private Wealth Pty Ltd (AFSL No. 337927). Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situation or needs. You should not rely on any advice and/or information contained in this website and before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice. Please read our Financial Services Guide before deciding whether to obtain financial services from us.