Is It Time To Consider Buying Quest Diagnostics Incorporated (NYSE:DGX)?

Let's talk about the popular Quest Diagnostics Incorporated (NYSE:DGX). The company's shares received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$148 at one point, and dropping to the lows of US$131. 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 Quest Diagnostics' current trading price of US$131 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 Quest Diagnostics’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 Quest Diagnostics

Is Quest Diagnostics Still Cheap?

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. 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 Quest Diagnostics’s ratio of 18.61x is trading slightly below its industry peers’ ratio of 21.8x, which means if you buy Quest Diagnostics today, you’d be paying a decent price for it. And if you believe that Quest Diagnostics 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. Furthermore, Quest Diagnostics’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

Can we expect growth from Quest Diagnostics?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Quest Diagnostics' earnings over the next few years are expected to increase by 36%, 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 already priced in DGX’s positive 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 DGX? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on DGX, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for DGX, 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.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. While conducting our analysis, we found that Quest Diagnostics has 2 warning signs and it would be unwise to ignore these.

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

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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.