Tyson Foods, Inc. (NYSE:TSN) closed yesterday at $80.8, which left some investors asking whether the high earnings potential can still be justified at this price. Below I will be talking through a basic metric which will help answer this question.
View our latest analysis for Tyson Foods
Has the TSN train slowed down?
Investors in Tyson Foods 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 13 analysts is certainly positive with earnings forecasted to rise significantly from today’s level of $5.646 to $7.374 over the next three years. This indicates an estimated earnings growth rate of 11% per year, on average, which indicates a solid future in the near term.
Can TSN’s share price be justified by its earnings growth?
Stocks like Tyson Foods, with a price-to-earnings (P/E) ratio of 14.31x, always catch the eye of investors on the hunt for a bargain. In isolation, this metric can be a bit too simplistic but in comparison to benchmarks, it tells us that TSN is undervalued relative to the current US market average of 17.86x , and undervalued based on its latest annual earnings update compared to the Food average of 26.09x .
Tyson Foods’s price-to-earnings ratio stands at 14.31x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. However, seeing as Tyson Foods 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 14.31x and expected year-on-year earnings growth of 11% give Tyson Foods a higher PEG ratio of 1.35x. Based on this growth, Tyson Foods’s stock can be considered slightly overvalued , based on fundamental analysis.
What this means for you:
TSN’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:
- Financial Health: Are TSN’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.
- Past Track Record: Has TSN 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 TSN’s historicals for more clarity.
- 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.
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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.