Cooper Companies shares look undervalued after solid Q3 results

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Sep 6, 2021
  • Cooper Companies announced its most recent quarterly results Thursday last week.
  • The company reported stronger-than-expected revenue and earrings and issued upbeat guidance.
  • However, shares still trade at an attractive P/E ratio of 7.77, gaining the attention of value investors.

On Friday, Cooper Companies Inc. (NYSE:COO) shares edged slightly higher after announcing its most recent quarterly results. The company reported its fiscal Q3 revenue and earnings Thursday after markets closed beating analyst expectations.

The company posted non-GAAP FQ3 earnings per share of $3.41, beating the consensus Street estimate of $3.29. On the other hand, its GAAP EPS of $12.37 outperformed the average analyst expectation of $2.71, while revenue for the quarter soared by 32% to $763.4 million, $36.1 million better than market expectations.

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The company now expects full-year 2021 revenue in the range of $2.89 billion to $2.92 billion, slightly better than the Street forecast of $2.88 billion. On the other hand, its EPS guidance of $13.20 to $13.40 beats on the bull case but comes short on the base case.

Cooper Companies limited growth and exciting valuation

From a valuation perspective, Cooper Companies shares trade at an exciting P/E ratio of 7.77, making the stock attractive to value investors. However, analysts expect earnings per share to fall by 47% this year before rising 9.63% next year.

Therefore, growth investors could opt for alternatives in the market. Therefore, it could be why investors are unwilling to pay a high premium on COO shares. As a result, the stock trades at a relatively steep forward P/E ratio of 31.17.

Therefore, although Cooper Companies shares look substantially undervalued on a trailing 12-month basis, the forward P/E forecast explains why it may not be time yet to bet on the stock.

Source – TradingView

A pullback seems imminent after the rally

Technically, Cooper shares seem to have recently spiked to overbought conditions of the 14-day RSI. Moreover, the stock also seems to be trading closer to the trendline resistance in the intraday chart.

Therefore, the COO stock price seems poised for a pullback. As a result, investors can target downward profits at approximately $444.56 or lower at $430.16. On the other hand, $464.24 and $476.24 are key resistance levels.

Bottom line: why bet on COO stock’s inevitable pullback?

In summary, although Cooper Companies shares seem substantially undervalued, the forecast earnings decline for the year limits the stock’s upside potential. Moreover, the COO stock price has already surged to overbought conditions, leaving little room for more upward movement.

Therefore, investors may be best placed to monitor the stock until it falls closer to one of the support levels. Alternatively, they can short COO shares to profit on the4 downward movement.

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