A. O. Smith Corporation (NYSE:AOS), which is in the building business, and is based in United States, saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Today I will analyse the most recent data on A. O. Smith’s outlook and valuation to see if the opportunity still exists.
What is A. O. Smith worth?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 0.26% above my intrinsic value, which means if you buy A. O. Smith today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is $42.58, then there isn’t really any room for the share price grow beyond what it’s currently trading. Although, there may be an opportunity to buy in the future. This is because A. O. Smith’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.
What kind of growth will A. O. Smith generate?
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. 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. A. O. Smith’s earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has already priced in AOS’s positive outlook, 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 confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping tabs on AOS, now may not be the most optimal 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.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on A. O. Smith. You can find everything you need to know about A. O. Smith in the latest infographic research report. If you are no longer interested in A. O. Smith, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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.
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