Is Now The Time To Look At Buying Quest Diagnostics Incorporated (NYSE:DGX)?

Let's talk about the popular Quest Diagnostics Incorporated (NYSE:DGX). The company's shares saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. The recent share price gains has brought the company back closer to its yearly peak. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s take a look at Quest Diagnostics’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Quest Diagnostics

What Is Quest Diagnostics Worth?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’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 21.81x is currently trading slightly below its industry peers’ ratio of 23.23x, which means if you buy Quest Diagnostics today, you’d be paying a reasonable 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. In addition to this, it seems like Quest Diagnostics’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from Quest Diagnostics?

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 profit expected to grow by 39% over the next couple of years, the future seems bright for Quest Diagnostics. 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? 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.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Quest Diagnostics, and understanding this should be part of your investment process.

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.