Caterpillar Stock Faces Uphill Climb as Analysts Question Future Growth

Caterpillar (CAT) stock has returned 75% over the past twelve months, significantly outperforming the S&P 500's 16.0% return during the same period. The company's shares now trade at a price-to-earnings (P/E) ratio of 35.1 times its past year's profit, which is above its own three-year average of 22.0.

To determine if there's room for further growth, analysts looked at Caterpillar's potential for higher sales. With the assumption that revenue will grow by 15.6% per annum over the next three years, the stock could increase by 32.6%. This projection is based on arithmetic calculations and not a forecast.

According to management, the company has seen significant growth in its Power & Energy segment, with power generation sales increasing by 72% in fiscal Q2 2026. A notable driver of this growth was demand for large gensets and turbines used in data centers. The backlog of unfilled orders stood at $72 billion in fiscal Q2 2026, a 92% increase from the previous year.

It's worth noting that if sales growth slows down or the P/E ratio holds steady, the upside potential for Caterpillar stock would be significantly reduced. For instance, if revenue grows two percentage points slower each year, the three-year upside would decrease to 25.8%.