The railway panorama has gone through a rather complicated situation in recent weeks. To be sure, the disruptions from the railway strikes lasted an incredibly short period of time. As I've already noted, these strike headlines were mostly short-term noise that meant absolutely nothing for long-term fundamentals. Although rail strikes could leave a huge dent in the Canadian (and North American) economy as goods stop moving from point A to point B, such disruptions would likely have translated into nothing more than better entry points for eager investors. to increase your exposure. to the best railway plays in the country.
In this article, we will take a closer look CP Lane (TSX: CP), or CPKC (short for Canadian Pacific Kansas City), as it is now called. Following the purchase of Kansas City Southern, the company now stands as the largest railroad in the country with a massive market capitalization of $107 billion.
CP Rail Stock: It Hasn't Looked This Expensive In A Long Time!
However, CP Rail should not get too comfortable with its new market capitalization leadership position, as CN rail (TSX:CNR) is not far behind with its market capitalization of $98.25 billion. In any case, CP has advanced at a faster pace than its former Canadian rival. But the big question is whether the momentum and top stock chart allows for better buying as we enter the month of October.
There is a danger in buying better performing stocks, often much more expensive. And with CP stock just under 7% away from hitting all-time highs just shy of $124 per share, I think investors asking if it's too late to buy are on the right track (sorry for the game of words, friends!)
Is There Too Much Hype in CP Stock?
At these levels, CP stock fetches a whopping 30.8 times price to earnings (P/E). That's expensive for a railway project and I don't care if it performs much better than its rivals. There's too much hype here, probably because of the remaining potential behind the Kansas City Southern assets purchased nearly three years ago.
Without a doubt, the new rail network seems enviable, especially the part that extends into the southern United States and Mexico. If more companies wanted to move production and assembly to Mexico, CP could benefit from cross-border volumes.
That being said, if Donald Trump heads to the Oval Office again, I would say large tariffs could be imposed on cars shipped to the US from Mexico.
As such, I wouldn't be too optimistic about CP Rail's single network. Arguably I think there's too much enthusiasm in CP right here. Of course, this is the most interesting and growing railway company. However, you're paying a high premium, with shares selling for $114 and change, perhaps too high a premium.
Is it too late to buy CP shares?
Personally, I prefer to go for a cheaper railway set. Whether you go with CN Rail, which has a P/E of 18.5 times, or one based outside the US, value investors can do better with almost any other North American railroad. In short, I think it's too late to buy CP Rail stock. It's too expensive north of 30 times the P/E.