WSP Global Inc (TSX:WSP) closed yesterday at $48.56, leaving some investors asking whether this price can still be justified by the high growth potential. Let’s see. View our latest analysis for WSP Global
How is WSP going to perform in the future?
Based on analyst estimates WSP Global’s earnings are supposed to increase by 23.7% in year’s time. This would see the earnings rise to $2.81 levels. No doubt this would please existing investors who are used to $1.62 over the past years.
This means earnings will be higher than recent years.
During the same time revenue is predicted to dip from $6.38 Billion M to $5.64 Billion M in 2018 and profit is predicted to escalate from $199 Million to $291 Million in 2018, roughly growing 1.5x. Margins are expected to be not high but still acceptable at 5.2% during this time as well.
Is WSP Global overvalued based on current earnings?
WSP is trading at price to earnings (PE) ratio of 24.6x, telling us WSP Global is overvalued based on current earnings compared to the Capital Goods industry average of 24.4x and undervalued relative to the current CA market average of 25.5x .
P/E ratio is simply a stock’s price divided by its earnings per share (EPS). It is a straightforward and popular way of assessing how much investors are willing to pay for each dollar a company earns.
Is WSP’s share price justified by its earnings growth?
We understand WSP seems to be overvalued based on current earnings when we compare it to its industry peers.But to be able to properly assess the value of a high growth stock like WSP Global we must include its earnings growth in our calculations using the PEG ratio.
The PEG ratio (price/earnings to growth ratio) is a valuation metric used to assess the relative trade-off between the price of a stock, the earnings per share (EPS), and the company’s expected growth. Since P/E ratio is in general higher for a company with a higher growth rate, using just the P/E ratio would make high-growth companies appear overvalued relative to others. By dividing the P/E ratio by the earnings growth rate, the resulting ratio is considered to provide a more complete picture when comparing companies with different growth rates.
Expected 23.7% growth in earnings next year and P/E ratio of 24.6x give WSP Global a low PEG ratio of 1x. So when we include the growth factor in our analysis WSP Global appears quite good value based on the fundamenals.
What next? If you want to look into WSP Global further I recommend you take a look at our latest FREE analysis report. If you are not interested in WSP anymore, you can use our free platform to see my list of stocks which are undervalued when taking in account their future growth potential.