Exponent, Inc (NASDAQ: EXPO) investors have enjoyed seeing the stock price increase by 16.3% over the last month. As a mid-cap stock with decent 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 take a look at the company’s expected growth and valuation based on its most recent financial data to see if there is further upside moving forward.
What’s The Opportunity In Exponent?
Exponent appears to be overvalued by -45.4% at the moment, based on 12 separate valuation models. The stock is currently trading at $103.65 on the market compared to our average intrinsic value of $56.59. This means that the buying opportunity has probably disappeared for now.
|Analysis||Model Fair Value||Upside (Downside)|
|10-yr DCF Revenue Exit||$54.78||-47.2%|
|5-yr DCF Revenue Exit||$54.75||-47.2%|
|Peer Revenue Multiples||$51.35||-50.5%|
|10-yr DCF EBITDA Exit||$68.20||-34.2%|
|5-yr DCF EBITDA Exit||$73.03||-29.5%|
|Peer EBITDA Multiples||$63.68||-38.6%|
|10-yr DCF Growth Exit||$53.64||-48.2%|
|5-yr DCF Growth Exit||$53.21||-48.7%|
|Peer P/E Multiples||$62.50||-39.7%|
|Dividend Discount Model||$44.23||-57.3%|
|Dividend Discount Model (multi-stage)||$50.59||-51.2%|
|Earnings Power Value||$49.17||-52.6%|
Click on any of the analyses above to view the latest model with real-time data.
In addition to this, it seems like Exponent’s share price is quite stable, which could mean two things. One, it may take the share price a while to fall back down to an attractive buying range, and two, 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 of 0.40.
Can We Expect Growth From Exponent?
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 matters the most, a more compelling investment thesis would be high growth potential at a cheap price.
source: finbox.io data explorer
With Exponent’s relatively muted top-line growth of 4.5% expected over the next five years on average, growth doesn’t seem like a key catalyst for a buying decision, at least in the short to medium-term.
What This Means For Investors
Growth investors typically look to invest in companies that are expanding sales, gaining market share and building customer bases. On the other hand, value investors often argue that the most successful investments are in companies that deliver the highest cash flows while trading at the lowest valuation.
But why not put those hands together? A company that has both growth and value characteristics would certainly make the most attractive investment. So what did we find out about Exponent?
Unfortunately for shareholders, Exponent’s future growth is relatively low and it appears the stock is now trading above its intrinsic value. Therefore, it may be a good time to begin reducing your position in the company. However, there are also other factors to consider that could explain the current overvaluation.
It is important to note that there are a variety of other fundamental factors that I have not taken into consideration in this article. If you have not done so already, I highly recommend that you complete your research on Exponent by taking a look at the following:
Valuation Metrics: what is Exponent’s free cash flow yield and how does it compare to its publicly traded peers? This metric measures the amount of free cash flow for each dollar of equity (market capitalization). Analyze the free cash flow yield here.
Risk Metrics: what is Exponent’s cash ratio which is used to assess a company’s short-term liquidity. View the company’s cash ratio here.
Efficiency Metrics: return on equity is used to measure the return that a firm generates on the book value of common equity. View Exponent’s return on equity here.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.