Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
CDK Global, Inc. (NASDAQ:CDK), which is in the software business, and is based in United States, received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to $62.39 at one point, and dropping to the lows of $47.35. 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 CDK Global's current trading price of $47.94 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at CDK Global’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in CDK Global?
Great news for investors – CDK Global is still trading at a fairly cheap price. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that CDK Global’s ratio of 16.21x is below its peer average of 50.52x, which suggests the stock is undervalued compared to the Software industry. Another thing to keep in mind is that CDK Global’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.
Can we expect growth from CDK Global?
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. CDK Global’s earnings over the next few years are expected to increase by 27%, 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? Since CDK is currently undervalued, it may be a great time to increase your holdings in the stock. With an optimistic outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current undervaluation.
Are you a potential investor? If you’ve been keeping an eye on CDK for a while, now might be the time to enter the stock. Its buoyant future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy CDK. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed buy.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on CDK Global. You can find everything you need to know about CDK Global in the latest infographic research report. If you are no longer interested in CDK Global, 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.