Does The Hype Around Ormat Technologies, Inc.’s (NYSE:ORA) Growth Justify Its August Share Price?

Growth expectations for Ormat Technologies, Inc. (NYSE:ORA) are high, but many investors are starting to ask whether its last close at $73.42 can still be rationalized by the future potential. Below I will be talking through a basic metric which will help answer this question.

See our latest analysis for Ormat Technologies

What can we expect from Ormat Technologies in the future?

Investors in Ormat Technologies 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 6 analysts is buoyant with earnings per share estimated to rise from today’s level of $1.749 to $2.345 over the next three years. This results in an annual growth rate of 12%, on average, which signals a market-beating outlook in the upcoming years.

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

ORA is trading at quite a high price-to-earnings (PE) ratio of 41.98x. This tells us that Ormat Technologies is overvalued compared to the US market average ratio of 17.36x , and undervalued based on its latest annual earnings update compared to the Renewable Energy average of 41.98x .

NYSE:ORA Price Estimation Relative to Market, August 20th 2019
NYSE:ORA Price Estimation Relative to Market, August 20th 2019

Ormat Technologies’s price-to-earnings ratio stands at 41.98x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. However, seeing as Ormat Technologies is perceived as a high-growth stock, we must also account for its earnings growth, which is captured in the PEG ratio. A PE ratio of 41.98x and expected year-on-year earnings growth of 12% give Ormat Technologies a quite high PEG ratio of 3.43x. Based on this growth, Ormat Technologies’s stock can be considered overvalued , based on its fundamentals.

What this means for you:

ORA’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 ORA’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 ORA 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 ORA’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.