Is Cogent Communications Holdings, Inc.’s (NASDAQ:CCOI) Growth Strong Enough To Justify Its September Share Price?

Cogent Communications Holdings, Inc. (NASDAQ:CCOI) is considered a high growth stock. However its last closing price of $59.54 left investors wondering whether this growth has already been factored into the share price. Let’s look into this by assessing CCOI’s expected growth over the next few years.

Check out our latest analysis for Cogent Communications Holdings

Exciting times ahead?

If you are bullish about Cogent Communications Holdings’s growth potential then you are certainly not alone. Expectations from 14 analysts are extremely bullish with earnings per share estimated to rise from today’s level of $0.697 to $1.368 over the next three years. This indicates an estimated earnings growth rate of 22% per year, on average, which indicates an exceedlingly positive future in the near term.

Is CCOI’s share price justifiable by its earnings growth?

CCOI is trading at a very high price-to-earnings (PE) ratio of 85.41x, meaning Cogent Communications Holdings is overvalued based on current earnings compared to the Telecom industry average of 15.11x , and overvalued compared to the US market average ratio of 17.29x .

NasdaqGS:CCOI Price Estimation Relative to Market, September 5th 2019
NasdaqGS:CCOI Price Estimation Relative to Market, September 5th 2019

We already know that CCOI appears to be overvalued when compared to its industry average. But, since Cogent Communications Holdings is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 85.41x and expected year-on-year earnings growth of 22% give Cogent Communications Holdings a quite high PEG ratio of 3.8x. This tells us that when we include its growth in our analysis Cogent Communications Holdings’s stock can be considered overvalued , based on fundamental analysis.

What this means for you:

CCOI’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 highly recommend you to complete your research by taking a look at the following:

  1. Financial Health: Are CCOI’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 CCOI 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 CCOI’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.