Yahoo Finance Is There Now An Opportunity In America's Car-Mart, Inc. (NASDAQ:CRMT)?
America's Car-Mart, Inc. (NASDAQ:CRMT), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the NASDAQGS. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Today I will analyse the most recent data on America's Car-Mart’s outlook and valuation to see if the opportunity still exists.
See our latest analysis for America's Car-Mart
What Is America's Car-Mart Worth?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 America's Car-Mart’s ratio of 7.84x is trading slightly below its industry peers’ ratio of 8.67x, which means if you buy America's Car-Mart today, you’d be paying a reasonable price for it. And if you believe America's Car-Mart 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. Is there another opportunity to buy low in the future? Since America's Car-Mart’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What kind of growth will America's Car-Mart generate?
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. 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. Though in the case of America's Car-Mart, it is expected to deliver a negative earnings growth of -18%, 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? Currently, CRMT appears to be trading around industry price multiples, 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 CRMT, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on CRMT 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. In addition to this, 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 crystallize your views on CRMT should the price fluctuate below the industry PE ratio.
In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. To that end, you should learn about the 3 warning signs we've spotted with America's Car-Mart (including 2 which are a bit unpleasant).
If you are no longer interested in America's Car-Mart, 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.
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