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When Should You Buy Humana Inc. (NYSE:HUM)?

Simply Wall St

Let’s talk about the popular Humana Inc. (NYSE:HUM). The company’s shares received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to $333.48 at one point, and dropping to the lows of $268.27. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Humana’s current trading price of $268.27 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Humana’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Humana

Is Humana still cheap?

The stock seems fairly valued at the moment according to my relative valuation model. I’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 21.92x is currently trading slightly above its industry peers’ ratio of 21.5x, which means if you buy Humana today, you’d be paying a relatively reasonable price for it. And if you believe that Humana should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. Furthermore, it seems like Humana’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.

What does the future of Humana look like?

NYSE:HUM Past and Future Earnings, March 11th 2019

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations. Humana’s earnings over the next few years are expected to increase by 71%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? HUM’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. 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 HUM? Will you have enough conviction to buy should the price fluctuate below the true value?

Are you a potential investor? If you’ve been keeping tabs on HUM, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for HUM, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Humana. You can find everything you need to know about Humana in the latest infographic research report. If you are no longer interested in Humana, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.