Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Is Oshkosh's Stock Cheap by the Numbers?

By Anand Chokkavelu, CFA - Updated Apr 6, 2017 at 9:58PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Let's take a look.

Numbers can lie -- but they're the best first step in determining whether a stock is a buy. In this series, we use some carefully chosen metrics to size up a stock's true value based on the following clues:

  • The current price multiples.
  • The consistency of past earnings and cash flow.
  • How much growth we can expect.

Let's see what those numbers can tell us about how expensive or cheap Oshkosh (NYSE: OSK) might be.

The current price multiples
First, we'll look at most investors' favorite metric: the P/E ratio. It divides the company's share price by its earnings per share (EPS) -- the lower, the better.

Then, we'll take things up a notch with a more advanced metric: enterprise value to unlevered free cash flow. This divides the company's enterprise value (basically, its market cap plus its debt, minus its cash) by its unlevered free cash flow (its free cash flow, adding back the interest payments on its debt). Like the P/E, the lower this number is, the better.

Analysts argue about which is more important -- earnings or cash flow. Who cares? A good buy ideally has low multiples on both.

Oshkosh has a P/E ratio of 5.6 and an EV/FCF ratio of 31.4 over the trailing 12 months. If we stretch and compare current valuations to the five-year averages for earnings and free cash flow, Oshkosh has a P/E ratio of 45.1 and a five-year EV/FCF ratio of 6.2.

A positive one-year ratio under 10 for both metrics is ideal. For a five-year metric, under 20 is ideal.

Oshkosh has a mixed performance in hitting the ideal targets, but let's see how it compares against some competitors and industry mates. 

Company

1-Year P/E

1-Year EV/FCF

5-Year P/E

5-Year EV/FCF

Oshkosh 5.6 31.4 45.1 6.2
Force Protection (Nasdaq: FRPT) 22.5 8.9 14.5 NM
General Dynamics (NYSE: GD) 10.5 10.0 11.9 11.6
Terex (NYSE: TEX) NM NM 17.9 85.5

Source: Capital IQ, a division of Standard & Poor's; NM = not meaningful.

Numerically, we've seen how Oshkosh's valuation rates on both an absolute and relative basis. Next, let's examine ...

The consistency of past earnings and cash flow
An ideal company will be consistently strong in its earnings and cash flow generation.

In the past five years, Oshkosh's net income margin has ranged from -19.8% to 7.2%. In that same time frame, unlevered free cash flow margin has ranged from 1.4% to 17.5%.

How do those figures compare with those of the company's peers? See for yourself:

Source: Capital IQ, a division of Standard & Poor's; margin ranges are combined.

Additionally, over the last five years, Oshkosh has tallied up four years of positive earnings and five years of positive free cash flow.

Next, let's figure out ...

How much growth we can expect
Analysts tend to comically overstate their five-year growth estimates. If you accept them at face value, you will overpay for stocks. But while you should definitely take the analysts' prognostications with a grain of salt, they can still provide a useful starting point when compared to similar numbers from a company's closest rivals.

Let's start by seeing what this company's done over the past five years. In that time period, Oshkosh has put up past EPS growth rates of 16.8%. Meanwhile, Wall Street's analysts expect future growth rates of 6%.

Here's how Oshkosh compares to its peers for trailing five-year growth (due to losses, the trailing growth rates for Force Protection and Terex aren't meaningful):

Source: Capital IQ, a division of Standard & Poor's; EPS growth shown.

And here's how it measures up with regard to the growth analysts expect over the next five years:

Source: Capital IQ, a division of Standard & Poor's; estimates for EPS growth.

The bottom line
The pile of numbers we've plowed through has shown us the price multiples shares of Oshkosh are trading at, the volatility of its operational performance, and what kind of growth profile it has -- both on an absolute and a relative basis.

The more consistent a company's performance has been and the more growth we can expect, the more we should be willing to pay. We've gone well beyond looking at a 5.6 P/E ratio and we see that not all of Oshkosh's numbers are quite as impressive. But we see a lot to like. If you find Oshkosh's numbers or story compelling, don't stop. Continue your due diligence process until you're confident one way or the other. As a start, add it to My Watchlist to find all of our Foolish analysis.

If you want some more stock ideas, check out my recent article "The Greatest Companies of 2020."

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Oshkosh Corporation Stock Quote
Oshkosh Corporation
OSK
$109.31 (3.50%) $3.70
Terex Corporation Stock Quote
Terex Corporation
TEX
$43.35 (5.76%) $2.36
General Dynamics Corporation Stock Quote
General Dynamics Corporation
GD
$194.48 (2.65%) $5.03
Force Protection Inc. Stock Quote
Force Protection Inc.
FRPT

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
634%
 
S&P 500 Returns
141%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/03/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.