GATX Corporation (NYSE:GATX), is not the largest company out there, but it saw a decent share price growth of 10% on the NYSE over the last few months. Shareholders may appreciate the recent price jump, but the company still has a way to go before reaching its yearly highs again. As a US$4.9b market cap stock, it seems odd GATX is not more well-covered by analysts. Although, there is more of an opportunity for mispricing in stocks with low coverage, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today we will analyse the most recent data on GATX's outlook and valuation to see if the opportunity still exists.
What Is GATX Worth?
GATX is currently expensive based on our price multiple model, where we look at the company's price-to-earnings ratio in comparison to the industry average. In this instance, we've used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock's cash flows. We find that GATX's ratio of 21.02x is above its peer average of 15.61x, which suggests the stock is trading at a higher price compared to the Trade Distributors industry. In addition to this, it seems like GATX's share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, 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.
What does the future of GATX look like?
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. With profit expected to grow by 20% over the next year, the near-term future seems bright for GATX. 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? GATX's optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe GATX should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio 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 GATX for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for GATX, which means it's worth diving deeper into other factors in order to take advantage of the next price drop.
If you'd like to know more about GATX as a business, it's important to be aware of any risks it's facing. For instance, we've identified 3 warning signs for GATX (1 is significant) you should be familiar with.
If you are no longer interested in GATX, 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.