Let's talk about the popular Cummins Inc. (NYSE:CMI). The company's shares saw significant share price movement during recent months on the NYSE, rising to highs of $169.19 and falling to the lows of $148.18. 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 Cummins's current trading price of $161.42 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Cummins’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
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What's the opportunity in Cummins?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 14% below my intrinsic value, which means if you buy Cummins today, you’d be paying a fair price for it. And if you believe the company’s true value is $187.96, then there isn’t much room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that Cummins’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Cummins look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a negative profit growth of -4.6% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Cummins. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Currently, CMI appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on CMI for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on CMI should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Cummins. You can find everything you need to know about Cummins in the latest infographic research report. If you are no longer interested in Cummins, 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.