Caterpillar stock has 22% upside, according to one Wall Street analyst.

It has recorded a rise of 61% over the past 52 weeks. caterpillar (cat -0.16%) The stock performed better than the rest. S&P 500 It has increased almost threefold. And one analyst believes this run is not yet complete.

On Tuesday, JP MorganTami Zakaria sets a $435 price target for Caterpillar stock, making her the second most bullish analyst on Wall Street. (JeffriesWith a price target of $440, Stephen Volkmann currently has a high-level target on Cat.) But what exactly is it about Caterpillar that makes these analysts support this construction stock?

Is Caterpillar stock a buy?

It’s not the economy. In fact, “architectural data points are mixed,” Zakaria wrote in a memo covered by TheFly.com. If so, Caterpillar may not need to produce huge numbers to prove its right to rate the stock a buy.

In their last report, analysts expected Caterpillar to post 5.1% sales growth in the first quarter (on revenue of about $16 billion), with earnings needing to grow just 3.7% ($5.09 per share) to satisfy Wall Street. Longer-term expectations are similarly muted, with analysts predicting revenue growth of just 0.5% this year and a 5.6% increase in 2025. With Zakaria predicting “resilient margins,” Cat won’t need much sales expansion to beat it. prediction.

and margin is Increase. Cat’s operating profit margin of 20.4% is already a third better than the 15% margin it posted pre-pandemic. What concerns me is that the margin is 20%. method This is inconsistent with the company’s historical performance, which tends to maximize profitability by about 10%. To me, this suggests that margins are approaching or have already reached their cyclical peak and are due to revert to the mean.

If I’m right, Caterpillar’s strong margins are actually more of a warning sign than a reason for optimism. History may not repeat itself exactly, but it usually rhymes. Now may be the time for Caterpillar investors to take profits and look for a better deal.