This Growth Stock is Down 9%: Buy, Sell, or Hold?

This growth stock has climbed rapidly, and is up 12% after earnings! Yet there is still room to run according to the company’s outlook.

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Shares of Linamar (TSX:LNR) shot up last week as the machinery producer produced earnings that far outweighed analyst estimates. Linamar stock saw shares rise as much as 12% after the news hit, and yet, there is still room to grow.

Linamar stock hit its 52-week highs earlier this year, with shares at about $79. At $71 as of writing, this puts it in the position to see even more massive growth in the near future. So, here’s what investors should consider before they buy, sell, or indeed just hold the stock.

Buy

It’s pretty clear why investors might want to consider buying Linamar stock after earnings caused shares to rise. The company reported strong financial performance in the fourth quarter, as well as the full-year for 2023. Sales, operating earnings, and diluted earnings per share (EPS) all saw significant growth. Both mobility and industrial segments did well, with a surge in earnings for industrial segments from market share gains and acquisitions.

Earnings were up 18% year over year to $503.1 million, and the company is looking to outperform in 2024. What’s more, the stock returned cash to shareholders through a record quarterly dividend increase, with even more growth expected for 2024.

Growth has been impressive, with much attributed to strong sales in both of their business segments. The company now believes there will be continued double-digit growth in both top and bottom lines for 2024. So, undoubtedly, with a higher dividend and more growth to come, there is an argument to buy.

Sell

Yet there is also a reason to sell. The future outlook isn’t for sure, but what is for sure is the share price you could sell at right now if you own the stock. Plus, Linamar stock is heavily reliant on the auto industry, which is a cyclical market. This area tends to therefore see booms and busts, and a downturn could hurt the stock.

What’s more, there is a shift to electric vehicles (EV), which could be a challenge for Linamar, which focuses on gasoline-powered vehicles. And there is a lot of competition even if Linamar decides to expand into the EV sector.

So while more growth is predicted, it’s not for certain. Indeed there could be a market correction after the stock has climbed so high. So if you’re looking to perhaps take out returns you need right now, it could be the time.

Hold

Yet above all, if you’re unsure, I would keep holding Linamar stock if you already have it. The company has proven time and again over the last few quarters that it can beat out analyst estimates. There is also positive momentum both year over year as well as quarter over quarter, providing guidance that matches performance.

The stock also has an advantage from being diversified in both mobility and industrial segments. So it can certainly capitalize on these opportunities in the future. Plus, the stock might get into EV after all! And this could provide it with even more growth.

Plus there’s that dividend to consider, that’s now risen to $0.25 per share on a quarterly basis. That, of course, is $1 per share annually, or 1.4% as of writing. So if anything, I would continue to wait and see for Linamar stock. It may just be warming up.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Linamar. The Motley Fool has a disclosure policy.

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