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Is It Time To Consider Buying Canadian Pacific Railway Limited (TSE:CP)?

Simply Wall St

Let's talk about the popular Canadian Pacific Railway Limited (TSE:CP). The company's shares saw a decent share price growth in the teens level on the TSX over the last few months. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine Canadian Pacific Railway’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Canadian Pacific Railway

Is Canadian Pacific Railway still cheap?

The stock is currently trading at CA$310 on the share market, which means it is overvalued by 21% compared to my intrinsic value of CA$257.26. This means that the buying opportunity has probably disappeared for now. But, is there another opportunity to buy low in the future? Given that Canadian Pacific Railway’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 Canadian Pacific Railway look like?

TSX:CP Past and Future Earnings, November 6th 2019

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 a double-digit 13% over the next couple of years, the outlook is positive for Canadian Pacific Railway. 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 CP’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe CP should trade below its current price, selling high and buying it back up again when its price falls towards its real value 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 CP for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for CP, which means it’s worth diving deeper into other factors 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 Canadian Pacific Railway. You can find everything you need to know about Canadian Pacific Railway in the latest infographic research report. If you are no longer interested in Canadian Pacific Railway, 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.