National Tyre & Wheel Limited (ASX:NTD), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the ASX. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine National Tyre & Wheel’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for National Tyre & Wheel

What's The Opportunity In National Tyre & Wheel?

National Tyre & Wheel appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and 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 28.49x is currently well-above the industry average of 14.37x, meaning that it is trading at a more expensive price relative to its peers. In addition to this, it seems like National Tyre & Wheel’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will National Tyre & Wheel generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. With profit expected to more than double over the next couple of years, the future seems bright for National Tyre & Wheel. 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? It seems like the market has well and truly priced in NTD’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe NTD should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.