Trinity Industries, Inc. (NYSE:TRN), is not the largest company out there, but it saw a significant share price rise of 28% in the past couple of months on the NYSE. The recent jump in the share price has meant that the company is trading at close to its 52-week high. As a mid-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, could the stock still be trading at a relatively cheap price? Let's examine Trinity Industries's valuation and outlook in more detail to determine if there's still a bargain opportunity.
What's The Opportunity In Trinity Industries?
According to our 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. 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 18.17x is currently trading slightly below its industry peers' ratio of 22.13x, which means if you buy Trinity Industries today, you'd be paying a decent price for it. And if you believe that Trinity Industries 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. Although, there may be an opportunity to buy in the future. This is because Trinity Industries's beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company's shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
Can we expect growth from Trinity Industries?
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. However, with a negative profit growth of -4.6% expected next year, near-term growth certainly doesn't appear to be a driver for a buy decision for Trinity Industries. This certainty tips the risk-return scale towards higher risk.
What This Means For You
Are you a shareholder? TRN seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on TRN, take a look at whether its fundamentals have changed.
Are you a potential investor? If you've been keeping tabs on TRN for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there's less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven't considered today, which can help crystallize your views on TRN should the price fluctuate below the industry PE ratio.
If you want to dive deeper into Trinity Industries, you'd also look into what risks it is currently facing. For example, Trinity Industries has 4 warning signs (and 1 which is significant) we think you should know about.
If you are no longer interested in Trinity Industries, 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.