An incredible buying opportunity? This US stock keeps smashing expectations
The value of stocks is typically dictated by the earnings forecast. This is how much profit per share analysts believe the company will make. Some stocks are covered by 50 or more analysts while others, like British small-caps, are often only covered by one or two.
Likewise, this US stock, DXP Enterprises (NASDAQ:DXPE), is only covered by one analyst, and this analyst is vastly underestimating its performance, according to data published online.
Whatâs more, over the last month, this stock’s been massively sold off despite a huge earnings beat. Itâs nothing to do with the company, but Donald Trumpâs economic and trade policies which have caused a sell-off in US stocks coupled with concerns about frothy valuations in the artificial intelligence (AI) segment.
A closer look at the figures
According to the one analyst covering DXP Enterprises â a lead provider of maintenance, repair and overhaul products â the stock’s currently trading at 18.5 times forward earnings and 17.4 times earnings from the past 12 months. This actually suggests earnings are going in reverse.
However, the reality is anything but this. Simply, the analyst hasnât revisited its forecast since the recent earnings blowout. In Q4, the company delivered earnings per share (EPS) of $1.38 â $0.49 ahead of the estimate. This was up from $1.12 a year ago.
In short, recent quarterly earnings suggest that the current forecast is vastly under appreciating the companyâs growth trajectory. In fact, the current earnings forecast suggests that earnings will decline by 25% in the second half of 2025 â thatâs just not going to happen.
Personally, Iâm forecasting EPS of $5.50 for 2025. I believe thatâs a conservative estimate assuming the performance from the past two quarters can be sustained throughout 2025. And at the current share price, this would give us a price-to-earnings (P/E) ratio of just 14.1 times.
Whatâs driving growth?
DXP Enterprisesâ impressive growth trajectory’s being driven by a combination of strategic acquisitions, strong project activity, and a focus on high-margin markets. The companyâs Innovative Pumping Solutions (IPS) segment has been a standout, with revenue surging 47.7% in 2024, fuelled by robust demand in energy and water/wastewater projects. The backlog for these sectors remains elevated, supporting sustained revenue growth.
Meanwhile, the Supply Chain Services (SCS) segment, though flat in 2024, is expected to benefit from new customer accounts and enhanced technology-driven strategies. And finally, the Service Centres segment, which accounts for the majority of revenue, grew around 9% over the year, with growth in diversified end markets like safety services and metalworking.
The bottom line and a caveat
Starting with the caveat first. Itâs debt. The company, with a market-cap of $1.2bn, currently has total debt worth $676.3m and $148.3m of cash. Itâs not a huge net debt position, but it needs to be taken into account as investors assess the valuation proposition and as we assess how easy that debt is to service.
However, DXP meets several of the criteria for Peter Lynchâs (an incredibly successful American investor and fund manager) Perfect Stock, combining strong growth, an understandable business model and attractive fundamentals.
Iâve recently added this one to my portfolio, and itâs been a wild ride as Iâm back where I started. Around $80 a share, this could be an incredible opportunity to consider.
The post An incredible buying opportunity? This US stock keeps smashing expectations appeared first on The Motley Fool UK.
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James Fox has position in DXP Enterprises. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
