Is It Too Late To Consider GATX (GATX) After A 117% Five Year Run?

• If you are wondering whether GATX at around US$174 per share still offers value or is looking fully priced, you are not alone. This article is built to help you assess that question with clear numbers.
• GATX's share price, with the last close at US$174.26, sits alongside returns of 2.7% over the past week, 5.3% over the past month, 2.0% year to date, 16.7% over one year, 65.3% over three years and 117.4% over five years, which may influence how you think about its current risk and reward trade off.
• Recent attention on GATX has centered on how the company fits into the broader capital goods sector and what that means for its long term prospects. This context matters because investors often reassess what they are willing to pay for the stock when sector sentiment or expectations around railcar leasing and related services change.
• On our valuation checks, GATX scores 3 out of 6. Next we will walk through the different valuation methods behind that score, before finishing with a more holistic way to think about what the current price really implies.

GATX delivered 16.7% returns over the last year. See how this stacks up to the rest of the Trade Distributors industry.

Approach 1: GATX Dividend Discount Model (DDM) Analysis

The Dividend Discount Model looks at the cash you receive as a shareholder in the form of dividends, then projects that stream into the future and discounts it back to today. It is essentially asking what those expected dividends are worth in today’s dollars.

For GATX, the model uses a current dividend per share of US$2.53, an estimated return on equity of 11.74% and a payout ratio of about 31.9%. From this, the model applies a dividend growth rate of 3.26%, capped from an initial 8.00%, with an expected broader growth assumption of 7.996%. These inputs drive a DDM estimate of intrinsic value of about US$44.51 per share.

Compared with the recent share price around US$174, the DDM output suggests the stock may be trading at a high valuation on a dividend basis, with an intrinsic discount figure indicating it is 291.5% above the model’s estimated value.

Result: OVERVALUED

Our Dividend Discount Model (DDM) analysis suggests GATX may be overvalued by 291.5%. Discover 884 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for GATX.

Approach 2: GATX Price vs Earnings

For a profitable company like GATX, the P/E ratio is a useful way to think about value because it links what you pay for each share directly to the earnings that support that share. In general, higher growth expectations or lower perceived risk can justify a higher P/E, while slower growth or higher risk tends to align with a lower, more cautious range.

GATX currently trades on a P/E of 20.21x. That sits slightly below the Trade Distributors industry average of 21.21x and also below the peer group average of 21.75x. This suggests the stock is not priced at a premium relative to similar businesses on this measure alone.

Simply Wall St’s Fair Ratio for GATX is 21.21x. This is a proprietary estimate of what a reasonable P/E might be for the company after accounting for factors like its earnings growth profile, industry, profit margins, market cap and risk characteristics. Because it blends these company-specific inputs, the Fair Ratio can be more tailored than a simple comparison with broad industry or peer averages.

Putting this together, GATX’s actual P/E of 20.21x is modestly below the Fair Ratio of 21.21x. This points to the shares being slightly below that modelled fair range.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1443 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your GATX Narrative

Earlier we mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St let you link your view of GATX’s story to a forecast and a fair value by turning your assumptions about future revenue, earnings, margins and suitable P/E into a single number you can compare with today’s price. This is all available within an easy tool on the Community page that updates automatically when news or earnings arrive. One investor might build a Narrative that aligns with a fair value close to US$188.75 based on expectations similar to analyst forecasts, while another might use more cautious assumptions and arrive at a much lower fair value. The gap between their Fair Values and the current price then helps each of them decide whether they see GATX as more attractively priced, fully valued or expensive.

Do you think there's more to the story for GATX? Head over to our Community to see what others are saying!

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com