Is Kennametal Inc. (NYSE:KMT) Potentially Undervalued?

Kennametal Inc. (NYSE:KMT), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. Shareholders may appreciate the recent price jump, but the company still has a way to go before reaching its yearly highs again. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Today we will analyse the most recent data on Kennametal’s outlook and valuation to see if the opportunity still exists.

We've discovered 1 warning sign about Kennametal. View them for free.

What's The Opportunity In Kennametal?

Good news, investors! Kennametal is still a bargain right now according to our price multiple model, which compares the company's price-to-earnings ratio to the industry average. We’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 14.75x is currently well-below the industry average of 23.07x, meaning that it is trading at a cheaper price relative to its peers. What’s more interesting is that, Kennametal’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.

Check out our latest analysis for Kennametal

What does the future of Kennametal look like?

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. Kennametal's earnings over the next few years are expected to increase by 29%, 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 KMT is currently below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. With a positive 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 price multiple.

Are you a potential investor? If you’ve been keeping an eye on KMT for a while, now might be the time to make a leap. Its buoyant future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy KMT. 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.

So while earnings quality is important, it's equally important to consider the risks facing Kennametal at this point in time. You'd be interested to know, that we found 1 warning sign for Kennametal and you'll want to know about this.

If you are no longer interested in Kennametal, 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.