While ARB Corporation Limited (ASX:ARB) might not have the largest market cap around , it received a lot of attention from a substantial price movement on the ASX over the last few months, increasing to AU$41.70 at one point, and dropping to the lows of AU$36.45. 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 ARB's current trading price of AU$38.31 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 ARB’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 ARB

Is ARB Still Cheap?

ARB is currently expensive based on our price multiple model, where we look at the company's price-to-earnings ratio in comparison to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that ARB’s ratio of 34.17x is above its peer average of 13.85x, which suggests the stock is trading at a higher price compared to the Auto Components industry. Another thing to keep in mind is that ARB’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.

Can we expect growth from ARB?

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. With profit expected to grow by 38% over the next couple of years, the future seems bright for ARB. 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 ARB’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 ARB 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.