In This Article:
Let's talk about the popular Cummins Inc. (NYSE:CMI). The company's shares saw a significant share price rise of 29% in the past couple of months on the NYSE. The company's trading levels have reached its high for the past year, following the recent bounce in the share price. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s take a look at Cummins’s outlook and value based on the most recent financial data to see if the opportunity still exists.
See our latest analysis for Cummins
What Is Cummins Worth?
According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 24.77x is currently trading slightly below its industry peers’ ratio of 24.79x, which means if you buy Cummins today, you’d be paying a decent price for it. And if you believe that Cummins should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, Cummins’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
What kind of growth will Cummins generate?
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 60% over the next couple of years, the future seems bright for Cummins. 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 already priced in CMI’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at CMI? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?