Linamar Corp (TSX: LNR) is a Canada-based manufacturing company that makes powertrains and drivelines for vehicle and power generation markets and operates under two business segments: Transportation and Industrial.

Why Should Investors Book Profit? 

• Semiconductor crisis: The company’s mobility segment would continue to experience adverse conditions associated with semiconductor supply related issues, which we believe would lead to a sales decline in the upcoming tenure.

• Sequentially degrading margins: In Q3 2021, also the company failed on maintaining its pace and witnessed lower performance under operating margin matrix. These degrading margins on the sequential basis exhibits the pressure on company.

Source: REFINITIV, Analysis by Kalkine Group 

• Higher Cash Cycle days: The company is holding higher Cash Cycle (Days) compared to the industry, implying the company takes more days to convert its inventory to cash. Currently, its Cash Cycle is at 119.0 days compared to an industry median of 51.5 days.

• Trading near the upper band of Bollinger Band: Recently, the stock witnessed a healthy rally on the daily price chart and has moved above the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to Sales

Analysis by Kalkine group

Stock recommendation

There are certainly challenges which the company is facing in markets today, especially with semiconductors. The group’s mobility segment would continue to experience adverse conditions associated with semiconductor supply related issues, which we believe would lead to a sales decline in the upcoming tenure. Furthermore, its operating matrix is loosing its sheen on the sequential basis, which exhibits the pressure on the company. Additionally, the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Therefore, based on the above rationales and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 79.07 on January 6, 2022.

*The reference data in this report has been partly sourced from REFINITIV.

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