Is Now the Time to Buy Custom Truck One Source (CTOS) Amid Market Volatility and Dovish Fed Signals?

In a market environment marked by cautious optimism and shifting monetary policy, Custom Truck One Source (CTOS) presents a compelling case for investors seeking exposure to a high-growth industrial player. With valuation metrics that diverge sharply from industry averages, recent operational catalysts, and a backdrop of Federal Reserve easing, the question of whether CTOS is a buy now hinges on a nuanced analysis of its financial health, strategic momentum, and macroeconomic tailwinds.

Valuation: A Tale of Contrasts

CTOS's trailing P/E ratio of 50.11 and forward P/E of 120.48 as of 2025 starkly contrast with the automotive industry's average P/E of 7.7. Similarly, its EV/EBITDA ratio of 8.19–9.41 lags behind the "Auto & Truck" sector's EBITDA multiples of 23.66–37.44. These metrics suggest CTOS is trading at a significant discount to its peers, even as it reports robust revenue and EBITDA growth. For instance, third-quarter 2025 results showed a 7.8% year-over-year revenue increase to $482.1 million and a 19.6% jump in adjusted EBITDA to $96.0 million. Analysts using discounted cash flow models argue that CTOS's valuation is undervalued relative to its growth trajectory. However, the company's recent earnings miss-posting a -$0.03 EPS versus a forecasted -$0.02-triggered a 15.28% premarket decline, highlighting the market's sensitivity to near-term execution risks.

Catalysts: Operational Momentum and Strategic Expansion

CTOS's third-quarter performance underscores its ability to capitalize on demand in utility and infrastructure sectors. The opening of a new Orlando, Florida, facility in October 2025-a 20,000-square-foot operation with 11 service bays-positions the company to serve the growing Southeast market. Additionally, its product innovation, including an all-electric bucket truck unveiled at Utility Expo 2025, aligns with the global shift toward electrification. CEO Ryan McMonagle's reaffirmation of full-year guidance despite the earnings shortfall signals confidence in the company's long-term positioning. These catalysts, combined with a 12.9% year-over-year increase in adjusted gross profit to $155.5 million, suggest CTOS is navigating macroeconomic headwinds with operational resilience.

Market Psychology: Dovish Fed and the Discount Rate Conundrum

The Federal Reserve's dovish pivot in late 2025, marked by a 25-basis-point rate cut and signals of two additional reductions, has reshaped market psychology. Lower interest rates reduce the discount rate used to value future cash flows, a critical factor for high-growth stocks like CTOS. For leveraged companies, cheaper borrowing costs also alleviate financial pressure, enhancing margins and free cash flow. While the automotive industry faces challenges-such as U.S. sales forecasts dropping to 15.4 million units in 2025 due to tariffs-CTOS's niche in utility and construction equipment insulates it from broader consumer demand fluctuations. However, the divided FOMC and global fiscal stimulus efforts may temper the full impact of rate cuts, creating a mixed environment for valuation expansion.

Conclusion: A Calculated Bet

CTOS's valuation appears attractive relative to its growth metrics and industry peers, supported by operational catalysts and a dovish Fed environment. Yet, the recent earnings miss and stock volatility underscore the need for caution. Investors should weigh the company's strong EBITDA growth and strategic expansions against macroeconomic uncertainties, including potential tariff impacts and a cautious Fed. For those with a medium-term horizon and a tolerance for volatility, CTOS offers a compelling opportunity to capitalize on industrial innovation and monetary policy tailwinds.