Favorable projections for the global battery housing market, expected to reach US$25.85b by 2029, have put Linamar (TSX:LNR) in the spotlight as investors reassess its role in new energy vehicle supply chains.
See our latest analysis for Linamar.
The recent enthusiasm around battery housings appears to be reflected in Linamar’s share price, with an 18.63% 90 day share price return and a 54.16% 1 year total shareholder return hinting that momentum has been building.
If the battery housing story has caught your attention, it could be a good moment to scan other auto suppliers and manufacturers through auto manufacturers and see what else fits your watchlist.
With Linamar trading at CA$86.66, sitting only around 3% below the average analyst price target but showing an implied intrinsic discount of roughly 31%, it raises the question of whether there is still a buying opportunity here or if the market is already pricing in future growth.
Linamar trades on a P/E of 21.4x, which sits below its peer group average of 30.9x but above the broader North American auto components average of 19x.
The P/E ratio compares the share price to earnings per share, so for a company like Linamar it reflects what investors are currently paying for each dollar of earnings across its Mobility and Industrial segments.
With earnings affected by large one off items, including a CA$385.5m loss in the last twelve months and profit margins of 2.4% compared to 5.6% previously, the current P/E suggests the market is looking through some of that recent noise and assigning value to the longer term earnings profile.
Against direct peers, Linamar’s P/E of 21.4x looks restrained compared to the 30.9x peer average. However, compared with the 19x industry benchmark it looks more expensive, which highlights how investors are pricing it between general sector expectations and the higher rated peer group.
See what the numbers say about this price — find out in our valuation breakdown.
Result: Price-to-earnings of 21.4x (ABOUT RIGHT)
However, you also need to weigh risks such as earnings pressure from the recent CA$385.5m loss and potential execution challenges across its diverse Mobility and Industrial operations.
Find out about the key risks to this Linamar narrative.
While the 21.4x P/E points to a price that looks roughly in line with earnings, our DCF model paints a different picture. With Linamar at CA$86.66 versus an estimated fair value of CA$126.28, it flags a discount of about 31%, which is a big gap for you to weigh up.
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Linamar for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 877 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match – so you never miss a potential opportunity.
If parts of this thesis do not quite fit how you see the company, you can review the numbers yourself and shape your own view with Do it your way.
A great starting point for your Linamar research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.
If you are serious about building a stronger portfolio, do not stop at one company. Use the screener to spot opportunities that others might overlook.
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.
Companies discussed in this article include LNR.TO.
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