While Federal Signal Corporation (NYSE:FSS) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price increase on the NYSE over the last few months. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at Federal Signal’s outlook and value based on the most recent financial data to see if the opportunity still exists.
Is Federal Signal still cheap?
Great news for investors – Federal Signal is still trading at a fairly cheap price. According to my valuation, the intrinsic value for the stock is $52.43, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. However, given that Federal Signal’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Federal Signal 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. 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. With profit expected to grow by 30% over the next couple of years, the future seems bright for Federal Signal. 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? Since FSS is currently undervalued, it may be a great time to accumulate more of your holdings in the stock. With an optimistic 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 financial health to consider, which could explain the current undervaluation.
Are you a potential investor? If you’ve been keeping an eye on FSS for a while, now might be the time to enter the stock. Its prosperous future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy FSS. 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 buy.
So while earnings quality is important, it's equally important to consider the risks facing Federal Signal at this point in time. While conducting our analysis, we found that Federal Signal 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. 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.
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