Why Canadian Pacific Railway Limited (TSE:CP) Could Be Worth Watching

Today we're going to take a look at the well-established Canadian Pacific Railway Limited (TSE:CP). The company's stock saw significant share price movement during recent months on the TSX, rising to highs of CA$104 and falling to the lows of CA$87.64. 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 Canadian Pacific Railway's current trading price of CA$90.20 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 Canadian Pacific Railway’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Canadian Pacific Railway

Is Canadian Pacific Railway still cheap?

Great news for investors – Canadian Pacific Railway is still trading at a fairly cheap price. According to my valuation, the intrinsic value for the stock is CA$130.85, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. Canadian Pacific Railway’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

What does the future of Canadian Pacific Railway look like?

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. Canadian Pacific Railway's earnings over the next few years are expected to increase by 76%, 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? Since CP is currently undervalued, it may be a great time to increase your holdings in the stock. With an optimistic outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current undervaluation.

Are you a potential investor? If you’ve been keeping an eye on CP for a while, now might be the time to enter the stock. Its buoyant future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy CP. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed buy.

So while earnings quality is important, it's equally important to consider the risks facing Canadian Pacific Railway at this point in time. For example, we've found that Canadian Pacific Railway has 2 warning signs (1 is a bit concerning!) that deserve your attention before going any further with your analysis.

If you are no longer interested in Canadian Pacific Railway, 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.