Is Caterpillar, Inc. overvalued or undervalued?

As of 5 August 2025, the valuation grade for Caterpillar, Inc. has moved from very expensive to expensive, indicating a shift in perception regarding its market valuation. The company is currently considered overvalued based on its P/E ratio of 26, which is lower than its peer Deere & Co. at 44.92 but higher than Cummins, Inc. at 28.99. Additionally, Caterpillar's EV to EBITDA stands at 20.17, which is notably higher than PACCAR, Inc.'s 11.43, further supporting the overvaluation stance.
In comparison to its peers, Caterpillar's ROE of 56.08% is impressive, yet the overall valuation metrics suggest that it is trading at a premium relative to its earnings potential. The stock has outperformed the S&P 500 over various periods, with a YTD return of 28.72% compared to the S&P 500's 12.22%, indicating strong market performance despite its high valuation.