Gorman-Rupp (GRC) is back in focus after reporting record quarterly sales, higher adjusted earnings per share and strong incoming orders, supported by demand in infrastructure, flood control, storm water management and data center projects.
See our latest analysis for Gorman-Rupp.
Despite record quarterly results, the 1-day share price return of a 2.70% decline and the 7-day return of a 5.11% decline have cooled recent momentum, although the 90-day share price return of 31.47% and 1-year total shareholder return of 61.74% indicate strong longer term gains.
If this pumps and infrastructure story has caught your attention, it could be a good moment to broaden your search with our 23 power grid technology and infrastructure stocks as a potential hunting ground for related opportunities.
With the shares still below the average analyst price target and an intrinsic value estimate roughly in line with today’s US$60.95 level, you have to ask yourself: is there still a buying opportunity here, or is the market already pricing in future growth?
Preferred P/E of 30.3x: Is it justified?
Gorman-Rupp shares last closed at $60.95, and on a P/E of 30.3x they are priced at a premium to both the US Machinery industry and the company’s own fair P/E estimate.
The P/E ratio links the share price to earnings per share, so a higher multiple usually reflects higher expectations for future earnings or a perceived quality premium. For a pump manufacturer with a long operating history, this kind of multiple suggests investors are willing to pay up for the earnings stream.
In this case, the market multiple of 30.3x stands above the US Machinery industry average of 27x, and also above the estimated fair P/E of 18.4x. That is a sizeable gap to where the market could arguably settle if sentiment cools and the P/E gravitates closer to the fair level implied by the SWS model.
Explore the SWS fair ratio for Gorman-Rupp
Result: Price-to-earnings of 30.3x (OVERVALUED)
However, you also have to weigh the rich P/E against risks such as any slowdown in infrastructure projects or weaker order trends from key end markets.
Find out about the key risks to this Gorman-Rupp narrative.
Another View: DCF Says GRC Is Close to Fair Value
Our DCF model points to a future cash flow value of about $60.59 per share, which is very close to the current $60.95 price. So while the P/E suggests Gorman-Rupp looks expensive, the cash flow view implies the shares are roughly in line with expectations. Which lens do you trust more?
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Gorman-Rupp for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 49 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
If this mix of strong recent performance and richer valuation leaves you undecided, it is worth looking at the full picture yourself and acting while the data is fresh. You can start with 2 key rewards and 1 important warning sign.
Ready for more investing ideas?
Before you move on, give yourself the chance to compare GRC with other clear, data backed ideas that might better fit your portfolio goals.
- Zero in on quality at a sensible price with our 49 high quality undervalued stocks that filters for companies combining fundamentals with appealing valuations.
- Strengthen your income potential by reviewing our 16 dividend fortresses featuring companies with higher yields and a focus on consistency.
- Protect your downside by scanning our 63 resilient stocks with low risk scores which highlights businesses with more resilient risk profiles.
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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