Is There Now An Opportunity In Darling Ingredients Inc. (NYSE:DAR)?

Darling Ingredients Inc. (NYSE:DAR), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$41.85 at one point, and dropping to the lows of US$27.63. 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 Darling Ingredients' current trading price of US$29.29 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Darling Ingredients’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

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Is Darling Ingredients Still Cheap?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Darling Ingredients’s ratio of 16.61x is trading slightly below its industry peers’ ratio of 16.84x, which means if you buy Darling Ingredients today, you’d be paying a reasonable price for it. And if you believe that Darling Ingredients 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. So, is there another chance to buy low in the future? Given that Darling Ingredients’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.

See our latest analysis for Darling Ingredients

What kind of growth will Darling Ingredients generate?

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 matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 97% over the next couple of years, the future seems bright for Darling Ingredients. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has already priced in DAR’s positive outlook, 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 DAR? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

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

So while earnings quality is important, it's equally important to consider the risks facing Darling Ingredients at this point in time. Our analysis shows 2 warning signs for Darling Ingredients (1 is potentially serious!) and we strongly recommend you look at these before investing.

If you are no longer interested in Darling Ingredients, 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.