PACCAR Inc (NASDAQ:PCAR) led the NASDAQGS gainers with a relatively large price hike in the past couple of weeks. As a large-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, what if the stock is still a bargain? Today I will analyse the most recent data on PACCAR’s outlook and valuation to see if the opportunity still exists.
What’s the opportunity in PACCAR?
According to my valuation model, PACCAR seems to be fairly priced at around 2.7% below my intrinsic value, which means if you buy PACCAR today, you’d be paying a fair price for it. And if you believe that the stock is really worth $82.12, then there isn’t much 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 PACCAR’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 PACCAR 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. Though in the case of PACCAR, it is expected to deliver a negative earnings growth of -7.6%, 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? PCAR seems fairly priced right now, 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 optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on PCAR for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, 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 crystalize your views on PCAR should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on PACCAR. You can find everything you need to know about PACCAR in the latest infographic research report. If you are no longer interested in PACCAR, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.