Today we're going to take a look at the well-established Quest Diagnostics Incorporated (NYSE:DGX). The company's stock saw a decent share price growth of 13% on the NYSE over the last few months. The company's trading levels have approached the yearly peak, following the recent bounce in the share price. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s examine Quest Diagnostics’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Quest Diagnostics

What's The Opportunity In Quest Diagnostics?

According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 20.5x is currently trading slightly below its industry peers’ ratio of 25.15x, which means if you buy Quest Diagnostics today, you’d be paying a decent price for it. And if you believe that Quest Diagnostics should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, Quest Diagnostics’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

Can we expect growth from Quest Diagnostics?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Quest Diagnostics' earnings over the next few years are expected to increase by 42%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? DGX’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at DGX? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on DGX, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for DGX, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Quest Diagnostics at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Quest Diagnostics.

If you are no longer interested in Quest Diagnostics, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.