Has Caterpillar’s Stock Become Overvalued?

Tuesday, March 29, 2011

Caterpillar’s stock is hitting new highs. That fact, by itself, is not worrisome. But what about its valuation? Is that getting too high?

Certainly this comparison makes it look so:

Price/estimated earnings ratios:

  • 2011 – Caterpillar = 17.8x; DJIA = 12.6x
  • 2012 – Caterpillar = 13.7x; DJIA = 11.3x

So, should we avoid Caterpillar now? No. Even with the price run-up, the stock’s valuation looks reasonable. Here’s the picture …

This article is on SeekingAlpha.com

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