The Timken Company (NYSE:TKR) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of $41.63 is based on unrealistic expectations. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.
What can we expect from Timken in the future?Investors in Timken have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. Expectations from 8 analysts are certainly positive with earnings per share estimated to rise from today’s level of $3.926 to $6.197 over the next three years. This indicates an estimated earnings growth rate of 12% per year, on average, which indicates a solid future in the near term.
Is TKR available at a good price after accounting for its growth?
Stocks like Timken, with a price-to-earnings (P/E) ratio of 10.6x, always catch the eye of investors on the hunt for a bargain. In isolation, this metric can be a bit too simplistic but in comparison to benchmarks, it tells us that TKR is undervalued relative to the current US market average of 17.16x , and undervalued based on its latest annual earnings update compared to the Machinery average of 19.74x .
Timken’s price-to-earnings ratio stands at 10.6x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. However, seeing as Timken is perceived as a high-growth stock, we must also account for its earnings growth, which is captured in the PEG ratio. A PE ratio of 10.6x and expected year-on-year earnings growth of 12% give Timken a low PEG ratio of 0.87x. Based on this growth, Timken’s stock can be considered fairly valued , based on its fundamentals.
What this means for you:
TKR’s current undervaluation could signal a potential buying opportunity to increase your exposure to the stock, or it you’re a potential investor, now may be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Financial Health: Are TKR’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Past Track Record: Has TKR been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of TKR’s historicals for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.