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Linamar's innovation centre in Guelph, Ont.

glenn lowson The Globe and Mail

Vehicle parts maker Linamar Corp. is firing on all cylinders, but investors are approaching the stock with caution after it doubled in price over the past year and is outpacing its peers.

Linamar shares are currently trading near all-time highs amid a remarkable rebound in the auto sector since the last recession.

Record earnings and sales, alongside an impressive order backlog, are generating investor and analyst praise for the Guelph, Ont.-based producer of components for automobiles and industrial vehicles.

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But too much of a good thing has some calling for prudence.

"The company is doing very well, but from a valuation standpoint it's expensive. I generally would recommend that investors be careful when they buy expensive stocks," Canaccord Genuity analyst David Tyerman said in an interview on Tuesday.

He recently downgraded his recommendation on the stock to "hold" from "buy," citing the share's recent run. His price target for the stock is $50.

Mr. Tyerman is one of two analysts with a hold rating on the stock, while the four recommend it as a buy, according to S&P Capital IQ. The analyst consensus price target for Linamar over the next year is $55.50.

Linamar shares closed at $49.41 on the Toronto Stock Exchange on Tuesday, not far from its all-time high last week of $51.89 (which takes into consideration a three-for-one-stock split in May, 1998, when the stock was trading around $90). The stock has risen by more than 1,500 per cent since the depths of the recession five years ago.

Linamar, Canada's second-largest auto parts maker by market value, designs and manufacturers components for passenger and industrial vehicles. It has operations in Canada, the United States, Mexico, Asia Pacific and Europe. The company says almost 60 per cent of its revenue comes from major manufacturers such as Ford, Chrysler, General Motors and Caterpillar.

The company's stock has outperformed peers such as Canadian industry leader Magna International Inc., third-place rival Martinrea International Inc. and smaller player Exco Technologies Ltd.

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Linamar is trading at about 12 times next year's earnings, which is slightly above the other strong performers, namely Exco at 11 times and Magna at 10 times.

Its valuation is more closely in line with Magna and Exco when measured by enterprise value, which is the market value of all its shares plus the company's net debt, compared to its earnings before interest, taxes, depreciation and amortization. Each has an EV/EBITDA ratio of just below six, according to S&P Capital IQ.

Bruce Campbell, president and portfolio manager of Campbell Lee & Ross Investment Management, says his firm owns Magna, not Linamar.

He doesn't see either stock as being expensive, "but given the chart there is some reluctance" about Linamar, he said in an e-mail. Still, he believes the stock could increase another 10 to 15 per cent.

Many analysts agree Linamar will move higher.

GMP Securities analyst Justin Wu has a "buy" on the stock and recently raised his price target to $59 from $50, citing the company's recent record-breaking earnings performance, higher cash flow and lower debt. Linamar reported a record year in sales and earnings in 2013, driven by growth in North America, Asia and Europe.

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"Linamar has done a terrific job with new program costs," Todd Coupland of CIBC World Markets said in a recent note, while increasing his analyst rating to "sector outperformer" from "sector performer" and hiking his price target to $60 from $42.

"We have been offside on our recommendation for couple of quarters," he added. "We believe investors should buy the shares for 2014 earnings growth."

Scotia Capital analyst Mark Neville increased his target to $59, calling Linamar "a niche growth story" in the auto parts industry. "We remain buyers," he said.

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