Is Aramark (NYSE:ARMK) Potentially Undervalued?

By
Simply Wall St
Published
January 19, 2022
NYSE:ARMK
Source: Shutterstock

Aramark (NYSE:ARMK), 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. 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? Today I will analyse the most recent data on Aramark’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Aramark

Is Aramark still cheap?

According to my valuation model, Aramark seems to be fairly priced at around 12% below my intrinsic value, which means if you buy Aramark today, you’d be paying a fair price for it. And if you believe the company’s true value is $40.11, then there’s not much of an upside to gain from mispricing. Is there another opportunity to buy low in the future? Since Aramark’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 Aramark generate?

earnings-and-revenue-growth
NYSE:ARMK Earnings and Revenue Growth January 19th 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. 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 revenues expected to grow by 45% over the next couple of years, the future seems bright for Aramark. If the level of expenses is able to be maintained, 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? ARMK’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. 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 the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping an eye on ARMK, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, 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.

So while earnings quality is important, it's equally important to consider the risks facing Aramark at this point in time. Case in point: We've spotted 1 warning sign for Aramark you should be aware of.

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

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