Is Genesee & Wyoming Inc. (NYSE:GWR) Undervalued After Accounting For Its Future Growth?

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

Genesee & Wyoming Inc. (NYSE:GWR) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of $100 is based on unrealistic expectations. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.

Check out our latest analysis for Genesee & Wyoming

What can we expect from Genesee & Wyoming in the future?

According to the analysts covering the company, the following few years should bring about good growth prospects for Genesee & Wyoming. The consensus forecast from 10 analysts is bullish with earnings forecasted to rise significantly from today’s level of $3.565 to $5.393 over the next three years. This indicates an estimated earnings growth rate of 13% per year, on average, which signals a market-beating outlook in the upcoming years.

Is GWR’s share price justified by its earnings growth?

GWR is trading at price-to-earnings (PE) ratio of 28.05x, which suggests that Genesee & Wyoming is overvalued based on current earnings compared to the Transportation industry average of 17.01x , and overvalued compared to the US market average ratio of 18.14x .

NYSE:GWR Price Estimation Relative to Market, July 1st 2019
NYSE:GWR Price Estimation Relative to Market, July 1st 2019

After looking at GWR’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. But, to properly examine the value of a high-growth stock such as Genesee & Wyoming, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 28.05x and expected year-on-year earnings growth of 13% give Genesee & Wyoming a quite high PEG ratio of 2.11x. This means that, when we account for Genesee & Wyoming’s growth, the stock can be viewed as overvalued , based on its fundamentals.

What this means for you:

GWR’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 GWR’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 GWR 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 GWR’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.