It hasn't been a great afternoon session for Cummins investors, who have watched their shares sink by -2.56% to a price of $235.64. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
Cummins is a Columbus, Indiana based multinational corporation that designs, manufactures, and distributes engines, filtration, and power generation products. Cummins also services engines and related equipment, including fuel systems, controls, air handling, filtration, emission control, electrical power generation systems, and trucks. The company belongs to the Industrials sector, which has an average price to earnings (P/E) ratio of 20.49 and an average price to book (P/B) ratio of 3.78. In contrast, Cummins has a trailing 12 month P/E ratio of 16.16 and a P/B ratio of 4.07.
P/B ratios are calculated by dividing the company's market value by its equity's book value. Equity refers to all of the company's assets minus its liabilities. Traditionally, a P/B ratio of around 1 shows that a company is fairly valued, but owing to consistently higher valuations in the modern era, investors generally compare against sector averages.
Cummins's PEG ratio is 1.566, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
