In This Article:
Today we're going to take a look at the well-established Cummins Inc. (NYSE:CMI). The company's stock saw a decent share price growth of 11% on the NYSE over the last few months. The company is inching closer to its yearly highs following the recent share price climb. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. 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.
View our latest analysis for Cummins
What's The Opportunity In Cummins?
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 23.55x is currently trading slightly above its industry peers’ ratio of 23.05x, which means if you buy Cummins today, you’d be paying a relatively reasonable price for it. And if you believe that Cummins should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Is there another opportunity to buy low in the future? Since Cummins’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What does the future of Cummins look like?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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 61% 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 financial strength of the company. 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?