Should You Buy AMA Group Ltd At This Share Price?

What happened to the AMA share price?

AMA Group Ltd [ASX:AMA] has been pretty much a super-growth stock in the last two years. Recently, AMA price has been slipping. That is because the market has been caught in the Greek-crisis-induced volatilities.

On those fatal days that Grexit looks like a real possibility, the market violently reacts and tries to price in the negativities. On those good days when negotiators display more willingness to make a deal, the market swings back to the upside.

One thing is for sure, brinksmanship is still very much in style in global finance. If you are an investor, all you can do is to open your eyes wide while sitting on this ‘crazy’ rollercoaster ride.

Growth and health

AMA is not trading at an overly expensive level, it has a P/E ratio of 28.08. It has been a fast growing company with fantastic financial health. If you want to take a page out of value investing legends such as Warren Buffett, this is the kind of company that looks interesting.

However, the stock has gained 129% over the last year. While that may seem like a figure you want to invest in, the next 52 weeks may be a totally different story for the stock. The last 13 weeks’ gain was 20%, which may give you some chance of profiting from a momentum trade. However, don’t count on that momentum to last forever.

What should you do with AMA shares now?

Eventually, you need to come back to the fundamentals and look at the valuation. AMA should get credit for being a fast growing company; it should be discounted for being relatively more expensive. It also should score an additional point for being a possible momentum-strategy candidate.

A well-hedged strategy should see the stock taking up less than 1.8 times leverage. The stock remains a profitable trade.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

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