What Does Powell Industries, Inc.'s (NASDAQ:POWL) Share Price Indicate?

While Powell Industries, Inc. (NASDAQ:POWL) might not have the largest market cap around , it received a lot of attention from a substantial price increase on the NASDAQGS over the last few months. The recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s take a look at Powell Industries’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Powell Industries

What's The Opportunity In Powell Industries?

According to our 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. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Powell Industries’s ratio of 17.63x is trading slightly below its industry peers’ ratio of 19.44x, which means if you buy Powell Industries today, you’d be paying a decent price for it. And if you believe Powell Industries should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, Powell Industries’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

What kind of growth will Powell Industries 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 Powell Industries, it is expected to deliver a relatively unexciting earnings growth of 8.2%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for Powell Industries, at least in the near term.

What This Means For You

Are you a shareholder? POWL’s future growth appears to have been factored into the current share price, with shares trading around industry price multiples. 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 POWL? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on POWL, now may not be the most optimal 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.

If you'd like to know more about Powell Industries as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Powell Industries has 2 warning signs and it would be unwise to ignore these.

If you are no longer interested in Powell Industries, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com