Is Caterpillar Inc. (NYSE:CAT) Potentially Undervalued?

Simply Wall St

Today we're going to take a look at the well-established Caterpillar Inc. (NYSE:CAT). The company's stock saw a significant share price rise of over 20% in the past couple of months on the NYSE. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s take a look at Caterpillar’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for Caterpillar

What's the opportunity in Caterpillar?

Great news for investors – Caterpillar is still trading at a fairly cheap price. According to my valuation, the intrinsic value for the stock is $185.35, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. However, given that Caterpillar’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.

Can we expect growth from Caterpillar?

NYSE:CAT Past and Future Earnings, January 10th 2020
NYSE:CAT Past and Future Earnings, January 10th 2020

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Caterpillar’s earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? Since CAT is currently undervalued, it may be a great time to increase your holdings in the stock. With an optimistic outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as financial health to consider, which could explain the current undervaluation.

Are you a potential investor? If you’ve been keeping an eye on CAT for a while, now might be the time to make a leap. Its buoyant future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy CAT. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed investment decision.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Caterpillar. You can find everything you need to know about Caterpillar in the latest infographic research report. If you are no longer interested in Caterpillar, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.