Stock Analysis

What Does Allison Transmission Holdings, Inc.'s (NYSE:ALSN) Share Price Indicate?

NYSE:ALSN
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Allison Transmission Holdings, Inc. (NYSE:ALSN), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$41.87 at one point, and dropping to the lows of US$32.63. 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 Allison Transmission Holdings' current trading price of US$32.63 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Allison Transmission Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Allison Transmission Holdings

What's The Opportunity In Allison Transmission Holdings?

Good news, investors! Allison Transmission Holdings is still a bargain right now according to my price multiple model, which compares 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 Allison Transmission Holdings’s ratio of 6.78x is below its peer average of 18.14x, which indicates the stock is trading at a lower price compared to the Machinery industry. What’s more interesting is that, Allison Transmission Holdings’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to move closer to its industry peers, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will Allison Transmission Holdings generate?

earnings-and-revenue-growth
NYSE:ALSN Earnings and Revenue Growth September 27th 2022

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 relatively muted profit growth of 6.3% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Allison Transmission Holdings, at least in the short term.

What This Means For You

Are you a shareholder? Even though growth is relatively muted, since ALSN is currently trading below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. However, there are also other factors such as capital structure to consider, which could explain the current price multiple.

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

So while earnings quality is important, it's equally important to consider the risks facing Allison Transmission Holdings at this point in time. While conducting our analysis, we found that Allison Transmission Holdings has 1 warning sign and it would be unwise to ignore this.

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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.