Does Brambles Limited’s (ASX:BXB) Stock Price Account For Its Growth?

Brambles Limited (ASX:BXB) closed yesterday at A$11.79, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.

See our latest analysis for Brambles

How is BXB going to perform in the future?

Investors in Brambles have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. The consensus forecast from 9 analysts is buoyant with earnings forecasted to rise significantly from today’s level of $0.285 to $0.548 over the next three years. This results in an annual growth rate of 13%, on average, which indicates a solid future in the near term.

Is BXB available at a good price after accounting for its growth?

BXB is trading at price-to-earnings (PE) ratio of 28.04x, which suggests that Brambles is overvalued based on current earnings compared to the Commercial Services industry average of 21.53x , and overvalued compared to the AU market average ratio of 16.23x .

ASX:BXB Price Estimation Relative to Market, August 21st 2019
ASX:BXB Price Estimation Relative to Market, August 21st 2019

After looking at BXB’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. But, since Brambles is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 28.04x and expected year-on-year earnings growth of 13% give Brambles a quite high PEG ratio of 2.12x. This tells us that when we include its growth in our analysis Brambles’s stock can be considered overvalued , based on its fundamentals.

What this means for you:

BXB’s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you’re a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Financial Health: Are BXB’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has BXB been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of BXB’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.