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GATX Corporation (NYSE:GATX), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. The recent share price gains has brought the company back closer to its yearly peak. As a well-established company, which tends to be well-covered 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 examine GATX’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Check out our latest analysis for GATX
What Is GATX Worth?
The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. 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 20.45x is currently trading slightly above its industry peers’ ratio of 19.37x, which means if you buy GATX today, you’d be paying a relatively reasonable price for it. And if you believe that GATX should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Although, there may be an opportunity to buy in the future. This is because GATX’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What does the future of GATX 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. GATX's earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.
What This Means For You
Are you a shareholder? It seems like the market has already priced in GATX’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 GATX? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?