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ESCO Technologies Inc. (NYSE:ESE), is not the largest company out there, but it led the NYSE gainers with a relatively large price hike in the past couple of weeks. As a US$2.4b market-cap stock, it seems odd ESCO Technologies is not more well-covered by analysts. Although, there is more of an opportunity for mispricing in stocks with low coverage, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s take a look at ESCO Technologies’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What's the opportunity in ESCO Technologies?
ESCO Technologies appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. 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 31.6x is currently well-above the industry average of 25.77x, meaning that it is trading at a more expensive price relative to its peers. In addition to this, it seems like ESCO Technologies’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.
What kind of growth will ESCO Technologies generate?
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. With profit expected to grow by 25% over the next couple of years, the future seems bright for ESCO Technologies. 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 well and truly priced in ESE’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe ESE should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. 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 tabs on ESE for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for ESE, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
It can be quite valuable to consider what analysts expect for ESCO Technologies from their most recent forecasts. So feel free to check out our free graph representing analyst forecasts.
If you are no longer interested in ESCO Technologies, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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