Trinity Industries, Inc. (NYSE:TRN), which is in the machinery business, and is based in United States, received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$23.30 at one point, and dropping to the lows of US$20.33. 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 Trinity Industries’s current trading price of US$21.00 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Trinity Industries’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 Trinity Industries
What’s the opportunity in Trinity Industries?
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 18.99x is currently trading slightly below its industry peers’ ratio of 19.89x, which means if you buy Trinity Industries today, you’d be paying a reasonable price for it. And if you believe that Trinity Industries 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. Is there another opportunity to buy low in the future? Since Trinity Industries’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. 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.
What kind of growth will Trinity Industries 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. 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. However, with a relatively muted profit growth of 6.3% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Trinity Industries, at least in the short term.
What this means for you:
Are you a shareholder? It seems like the market has already priced in TRN’s growth 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 TRN? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?
Are you a potential investor? If you’ve been keeping an eye on TRN, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Trinity Industries. You can find everything you need to know about Trinity Industries in the latest infographic research report. If you are no longer interested in Trinity Industries, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.
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