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Is HEICO Corporation (NYSE:HEI) Potentially Undervalued?

Let's talk about the popular HEICO Corporation (NYSE:HEI). The company's shares received a lot of attention from a substantial price increase on the NYSE over the last few months. 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? Today I will analyse the most recent data on HEICO’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for HEICO

Is HEICO still cheap?

HEICO appears to be overvalued by 47% at the moment, based on my discounted cash flow valuation. The stock is currently priced at US$82.00 on the market compared to my intrinsic value of $55.88. This means that the opportunity to buy HEICO at a good price has disappeared! But, is there another opportunity to buy low in the future? Given that HEICO’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of HEICO look like?

NYSE:HEI Past and Future Earnings April 13th 2020
NYSE:HEI Past and Future Earnings April 13th 2020

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. 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. Though in the case of HEICO, it is expected to deliver a negative earnings growth of -5.5%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? If you believe HEI is currently trading above its value, selling high and buying it back up again when its price falls towards its real value can be profitable. Given the risk from a negative growth outlook, this could be the right time to reduce your total portfolio risk. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on HEI for a while, now may not be the best time to enter into the stock. Price climbed passed its true value, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Should the price fall in the future, will you be well-informed enough to buy?

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

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.

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. Thank you for reading.

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