Stock Analysis

Is Now An Opportune Moment To Examine Aramark (NYSE:ARMK)?

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NYSE:ARMK
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Aramark (NYSE:ARMK), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the NYSE over the last few months. 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 Aramark’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for Aramark

Is Aramark still cheap?

The stock is currently trading at US$38.48 on the share market, which means it is overvalued by 38% compared to my intrinsic value of $27.80. This means that the opportunity to buy Aramark at a good price has disappeared! If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Aramark’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Aramark generate?

earnings-and-revenue-growth
NYSE:ARMK Earnings and Revenue Growth January 1st 2021

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, Aramark's earnings are expected to increase by 61%, 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 well and truly priced in ARMK’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe ARMK should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on ARMK for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook is encouraging for ARMK, which means it’s worth diving deeper into other factors 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. When we did our research, we found 2 warning signs for Aramark (1 is significant!) that we believe deserve your full attention.

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What are the risks and opportunities for Aramark?

Aramark provides food, facilities, and uniform services to education, healthcare, business and industry, sports, leisure, and corrections clients in the United States and internationally.

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Rewards

  • Trading at 3% below our estimate of its fair value

  • Earnings are forecast to grow 32.09% per year

  • Became profitable this year

Risks

  • Interest payments are not well covered by earnings

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