Stock Analysis

Is Now The Time To Look At Buying Finning International Inc. (TSE:FTT)?

TSX:FTT
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While Finning International Inc. (TSE:FTT) might not be the most widely known stock at the moment, it saw a significant share price rise of over 20% in the past couple of months on the TSX. With many analysts covering the mid-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 Finning International’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Finning International

Is Finning International Still Cheap?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 11.04x is currently trading slightly above its industry peers’ ratio of 6.88x, which means if you buy Finning International today, you’d be paying a relatively sensible price for it. And if you believe Finning International should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since Finning International’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from Finning International?

earnings-and-revenue-growth
TSX:FTT Earnings and Revenue Growth June 20th 2023

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. Though in the case of Finning International, it is expected to deliver a relatively unexciting earnings growth of 4.5%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for Finning International, at least in the near term.

What This Means For You

Are you a shareholder? It seems like the market has already priced in FTT’s growth outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at FTT? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on FTT, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 2 warning signs for Finning International (of which 1 makes us a bit uncomfortable!) you should know about.

If you are no longer interested in Finning International, 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.