This Cathie Wood Stock Is Already Up Nearly 30% This Year -- Is It a Buy?

Cathie Wood's Ark Innovation ETF (NYSEMKT: ARKK) broadly invests in what the firm describes as "disruptive innovation" plays in industries like robotics and artificial intelligence (AI).

Agricultural machinery specialist Deere (NYSE: DE) might seem out of place in that group, but there's a reason it accounts for 1.8% of that exchange-traded fund's holdings. Wood added it to the Ark portfolio in recognition of its autonomous tractors, advanced cameras that can distinguish weeds from crops, and cloud capabilities.

The benefits of marrying Deere's well-established legacy equipment business with disruptive technology have helped contribute to a bullish thesis that has driven its shares up by close to 30% to start the year.

But to determine whether Deere is still a buy after that rapid climb, we'll have to take a step back.

The long view

The S&P 500 is down slightly this year, which makes Deere's run-up look even more impressive. If you zoom out further, though, its outperformance is slimmer.

Over the past five years, Deere's stock price has climbed by about 91%, while the S&P 500 is up 75%. And on a total return basis, factoring in dividends and dividend reinvestment, Deere has returned 106% while the broad index has returned 87% over that period.

Here are a few other key points to consider before making a decision about investing in this stock.

Turbulence for all seasons

Agriculture is a cyclical business, with demand and investment rising and falling across the years and seasons. Valleys can also extend beyond a few quarters. In Deere's fiscal 2025 fourth-quarter earnings release, CEO John May said that "we believe 2026 will mark the bottom of the large ag cycle," which remains marked by margin pressure and persistent challenges.

The company's financial outlook aligns with May's statement. Deere reported net income of $5 billion in its fiscal 2025 (which ended Nov. 2), but expects between $4 billion and $4.75 billion in fiscal 2026.

Source image: Getty Images.

The recent upward stock swing may signal that investors are playing a bit of a timing game here, believing they're positioning themselves ahead of the bottom of the cycle.

Watch your step

Anyone looking to invest based on recent stock price momentum or betting on Deere's income to pick up steam may fall into a trap.

The company's current forward price-to-earnings ratio of about 36 is rich compared to 2025, when it stayed within a range of 22 to 30. That goes back to that potential indication that some investors are trying to get into the stock ahead of a pending bottom to the agriculture cycle. More upside is priced in. The risk now is that this sets up heightened expectations and gives the company little room for error.

Free-cash-flow yield is another useful valuation measure to consider here. It tells us the amount of free cash Deere earns as a percentage of its market cap. From October 2021 to October 2025, that yield averaged 2.9%, compared with its most recent reading, in October 2025, of about 2%.

That drop tells us investors are paying more for each dollar of cash the company generates.

Next move to consider

Anyone considering investing in Deere today should be aware that the stock price's recent climb is overshadowing some warning signs.

Management has already acknowledged that it will make less income this year than it did last year and that persistent challenges exist. The expectations already baked into the share price are high and will be difficult for the company to meet. We'll learn more about the state of Deere's business when it reports its fiscal 2026 first-quarter results on Thursday morning. But at these valuations, long-term and value investors may want to look for other opportunities.

Jack Delaney has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Deere & Company. The Motley Fool has a disclosure policy.