Cigna Corporation (NYSE:CI) received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$242 at one point, and dropping to the lows of US$204. 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 Cigna's current trading price of US$206 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Cigna’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in Cigna?
Good news, investors! Cigna is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Cigna’s ratio of 8.58x is below its peer average of 22.62x, which indicates the stock is trading at a lower price compared to the Healthcare industry. What’s more interesting is that, Cigna’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to move closer to its industry peers, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.
Can we expect growth from Cigna?
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. Though in the case of Cigna, it is expected to deliver a highly negative earnings growth in the next few years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? Although CI is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. Consider whether you want to increase your portfolio exposure to CI, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you’ve been keeping tabs on CI for some time, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
So while earnings quality is important, it's equally important to consider the risks facing Cigna at this point in time. To that end, you should learn about the 2 warning signs we've spotted with Cigna (including 1 which is potentially serious).
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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.
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