Stock Analysis

Is It Time To Consider Buying Allegion plc (NYSE:ALLE)?

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NYSE:ALLE
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Today we're going to take a look at the well-established Allegion plc (NYSE:ALLE). The company's stock received a lot of attention from a substantial price increase on the NYSE over the last few months. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Allegion’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Allegion

What is Allegion worth?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Allegion’s ratio of 30.26x is trading slightly above its industry peers’ ratio of 26.59x, which means if you buy Allegion today, you’d be paying a relatively reasonable price for it. And if you believe Allegion 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. So, is there another chance to buy low in the future? Given that Allegion’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 Allegion generate?

earnings-and-revenue-growth
NYSE:ALLE Earnings and Revenue Growth May 27th 2021

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Allegion's earnings over the next few years are expected to increase by 34%, 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? ALLE’s optimistic 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 financial strength of the company. Have these factors changed since the last time you looked at ALLE? 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 ALLE, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for ALLE, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Allegion at this point in time. In terms of investment risks, we've identified 2 warning signs with Allegion, and understanding them should be part of your investment process.

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