Let's talk about the popular Caterpillar Inc. (NYSE:CAT). The company's shares saw significant share price movement during recent months on the NYSE, rising to highs of US$363 and falling to the lows of US$317. 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 Caterpillar's current trading price of US$343 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 Caterpillar'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 Caterpillar?
Good news, investors! Caterpillar is still a bargain right now. According to our valuation, the intrinsic value for the stock is $447.26, but it is currently trading at US$343 on the share market, meaning that there is still an opportunity to buy now. Although, there may be another chance to buy again in the future. This is because Caterpillar'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 Caterpillar?
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. Though in the case of Caterpillar, it is expected to deliver a negative earnings growth of -6.4%, which doesn't help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What This Means For You
Are you a shareholder? Although CAT is currently undervalued, the negative outlook does bring on some uncertainty, which equates to higher risk. Consider whether you want to increase your portfolio exposure to CAT, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you've been keeping tabs on CAT for some time, but hesitant on making the leap, we recommend you dig deeper into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
So while earnings quality is important, it's equally important to consider the risks facing Caterpillar at this point in time. When we did our research, we found 3 warning signs for Caterpillar (1 shouldn't be ignored!) that we believe deserve your full attention.
If you are no longer interested in Caterpillar, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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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.
