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Bombardier Inc. (TSE:BBD.B), which is in the aerospace & defense business, and is based in Canada, saw a significant share price rise of over 20% in the past couple of months on the TSX. As a mid-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 Bombardier’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What's the opportunity in Bombardier?
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 20.46x is currently trading slightly below its industry peers’ ratio of 22.36x, which means if you buy Bombardier today, you’d be paying a fair price for it. And if you believe that Bombardier should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Bombardier’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 Bombardier look like?
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. With profit expected to more than double over the next couple of years, the future seems bright for Bombardier. 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? BBD.B’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 financial strength of the company. Have these factors changed since the last time you looked at BBD.B? 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 an eye on BBD.B, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for BBD.B, 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 Bombardier. You can find everything you need to know about Bombardier in the latest infographic research report. If you are no longer interested in Bombardier, 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 email@example.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.