Stock Analysis

What Does Ducommun Incorporated's (NYSE:DCO) Share Price Indicate?

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NYSE:DCO
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Ducommun Incorporated (NYSE:DCO), is not the largest company out there, but it saw significant share price movement during recent months on the NYSE, rising to highs of US$57.22 and falling to the lows of US$40.88. 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 Ducommun's current trading price of US$42.38 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Ducommun’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 Ducommun

What is Ducommun worth?

According to my 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, 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 14.84x is trading slightly below its industry peers’ ratio of 17.37x, which means if you buy Ducommun today, you’d be paying a reasonable price for it. And if you believe that Ducommun should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Although, there may be an opportunity to buy in the future. This is because Ducommun’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 does the future of Ducommun look like?

earnings-and-revenue-growth
NYSE:DCO Earnings and Revenue Growth June 17th 2022

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. With profit expected to grow by 38% over the next couple of years, the future seems bright for Ducommun. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? DCO’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 DCO? 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 tabs on DCO, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for DCO, 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.

If you want to dive deeper into Ducommun, you'd also look into what risks it is currently facing. To help with this, we've discovered 3 warning signs (1 is potentially serious!) that you ought to be aware of before buying any shares in Ducommun.

If you are no longer interested in Ducommun, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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