Stock Analysis

Is Now An Opportune Moment To Examine Ducommun Incorporated (NYSE:DCO)?

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NYSE:DCO
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While Ducommun Incorporated (NYSE:DCO) might not be the most widely known stock at the moment, it saw a decent share price growth in the teens level on the NYSE over the last few months. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Ducommun’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Ducommun

Is Ducommun still cheap?

Good news, investors! Ducommun 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 Ducommun’s ratio of 22x is below its peer average of 35.5x, which indicates the stock is trading at a lower price compared to the Aerospace & Defense industry. What’s more interesting is that, Ducommun’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from Ducommun?

earnings-and-revenue-growth
NYSE:DCO Earnings and Revenue Growth March 10th 2021

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. 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. Ducommun's earnings over the next few years are expected to increase by 47%, 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? Since DCO is currently trading below the industry PE ratio, it may be a great time to increase your holdings in the stock. With an optimistic profit outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. 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 DCO for a while, now might be the time to enter the stock. Its buoyant future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy DCO. 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 assessment.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. When we did our research, we found 2 warning signs for Ducommun (1 makes us a bit uncomfortable!) that we believe deserve your full attention.

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What are the risks and opportunities for Ducommun?

Ducommun Incorporated provides engineering and manufacturing products and services primarily to the aerospace and defense, industrial, medical, and other industries in the United States.

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Rewards

  • Trading at 25.6% below our estimate of its fair value

  • Earnings are forecast to grow 2.88% per year

  • Earnings grew by 283.3% over the past year

Risks

  • Debt is not well covered by operating cash flow

  • High level of non-cash earnings

  • Significant insider selling over the past 3 months

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Share Price

Market Cap

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