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Let's talk about the popular Union Pacific Corporation (NYSE:UNP). The company's shares saw its share price hover around a small range of US$214 to US$228 over the last few weeks. But is this actually reflective of the share value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Union Pacific’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Union Pacific still cheap?
According to my valuation model, Union Pacific seems to be fairly priced at around 3.89% above my intrinsic value, which means if you buy Union Pacific today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is $213.13, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because Union Pacific’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.
Can we expect growth from Union Pacific?
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. Union Pacific's earnings over the next few years are expected to increase by 30%, 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? UNP’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 track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping an eye on UNP, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, 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.
If you'd like to know more about Union Pacific as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Union Pacific, and understanding this should be part of your investment process.
If you are no longer interested in Union Pacific, 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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