Stock Analysis

What Does Federal Signal Corporation's (NYSE:FSS) Share Price Indicate?

NYSE:FSS
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Federal Signal Corporation (NYSE:FSS), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the NYSE. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. 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.

Check out our latest analysis for Federal Signal

What's The Opportunity In Federal Signal?

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. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 23.54x is currently trading slightly above its industry peers’ ratio of 19.96x, which means if you buy Federal Signal today, you’d be paying a relatively reasonable price for it. And if you believe that Federal Signal should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. In addition to this, it seems like Federal Signal’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will Federal Signal generate?

earnings-and-revenue-growth
NYSE:FSS Earnings and Revenue Growth September 1st 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. In the upcoming year, Federal Signal's earnings are expected to increase by 28%, 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? It seems like the market has already priced in FSS’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at FSS? 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 FSS, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for FSS, 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.

It can be quite valuable to consider what analysts expect for Federal Signal from their most recent forecasts. Luckily, you can check out what analysts are forecasting by clicking here.

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

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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.