Is It Too Late To Consider Buying H&E Equipment Services, Inc. (NASDAQ:HEES)?

H&E Equipment Services, Inc. (NASDAQ:HEES), is not the largest company out there, but it led the NASDAQGS gainers with a relatively large price hike in the past couple of weeks. The recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. 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. However, could the stock still be trading at a relatively cheap price? Today we will analyse the most recent data on H&E Equipment Services’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for H&E Equipment Services

What Is H&E Equipment Services Worth?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’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 12.65x is currently trading slightly below its industry peers’ ratio of 14.67x, which means if you buy H&E Equipment Services today, you’d be paying a decent price for it. And if you believe that H&E Equipment Services should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. So, is there another chance to buy low in the future? Given that H&E Equipment Services’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will H&E Equipment Services 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. However, with a negative profit growth of -8.0% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for H&E Equipment Services. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Currently, HEES appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on HEES, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on HEES for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on HEES should the price fluctuate below the industry PE ratio.

If you'd like to know more about H&E Equipment Services as a business, it's important to be aware of any risks it's facing. For example, we've found that H&E Equipment Services has 3 warning signs (1 can't be ignored!) that deserve your attention before going any further with your analysis.

If you are no longer interested in H&E Equipment Services, 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.