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Why Parker-Hannifin Corporation (NYSE:PH) Could Be Worth Watching

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Parker-Hannifin Corporation (NYSE:PH) received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$298 at one point, and dropping to the lows of US$236. 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 Parker-Hannifin's current trading price of US$236 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 Parker-Hannifin’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 Parker-Hannifin

What's the opportunity in Parker-Hannifin?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’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 17.94x is currently trading slightly below its industry peers’ ratio of 20.59x, which means if you buy Parker-Hannifin today, you’d be paying a reasonable price for it. And if you believe Parker-Hannifin should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that Parker-Hannifin’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Parker-Hannifin generate?

earnings-and-revenue-growth
earnings-and-revenue-growth

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. Parker-Hannifin's earnings over the next few years are expected to increase by 53%, 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? PH’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at PH? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

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

If you want to dive deeper into Parker-Hannifin, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for Parker-Hannifin you should be aware of.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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