Visteon Corporation (NYSE:VC) is considered a high growth stock but its last closing price of $99.9 made some investors wonder if it can be still rationalized by the high growth potential. Let’s look into that by diving into some good old fundamentals. Check out our latest analysis for Visteon
Should you get excited about VC’s future?
The excitement around Visteon’s growth potential is not unfounded. 6 analysts are expecting earnings to increase anywhere from 97% to 141% over the next few years which is around a $2.67 average yearly increase from current levels.
This will project the annual earnings to levels above what has been seen in the past few years.
Revenue during the same period is expected to grow from $3.17 Billion to $3.91 Billion in 2020 and profit is predicted to grow from $119 Million to $297 Million in 2020, roughly growing 2.5x. Margins are predicted to be quite acceptable at 7.6% during this time as well.
Is Visteon overvalued based on current earnings?
VC is today available with a PE (price to earnings) ratio of 24.3x and this also tells us the stock is overvalued based on current earnings compared to the Automobiles industry average of 12.1x and overvalued when compared to the US market average of 23.6x .
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 VC’s share price justifiable by its earnings growth?
We already know that VC appears to be overvalued when compared to its industry average.But seeing as Visteon is thought of as a high growth stock, to properly value it we must also account for its earnings growth by using calculation called 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.
Visteon’s PE ratio of 24.3x and estimated 37.8% growth in earnings next year give it a very low PEG ratio of 0.6x. This tells us that when including its growth in our analysis Visteon’s stock can be considered a very good value based on fundamental analysis.
What next? If you want to look into Visteon further I recommend you take a look at our latest FREE analysis report. If you are not interested in VC anymore, you can use our free platform to see my list of stocks which are undervalued when taking in account their future growth potential.