Is Ingevity Corporation (NYSE:NGVT) Undervalued After Accounting For Its Future Growth?

Looking at Ingevity Corporation’s (NYSE:NGVT) fundamentals some investors are wondering if its last closing price of $82.86 represents a good value for money for this high growth stock. Let’s look into this by assessing NGVT’s expected growth over the next few years.

See our latest analysis for Ingevity

Has the NGVT train slowed down?

According to the analysts covering the company, the following few years should bring about good growth prospects for Ingevity. The consensus forecast from 9 analysts is certainly positive with earnings per share estimated to surge from current levels of $4.086 to $6.314 over the next three years. This indicates an estimated earnings growth rate of 14% per year, on average, which signals a market-beating outlook in the upcoming years.

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

Ingevity is available at price-to-earnings ratio of 20.28x, showing us it is overvalued based on current earnings compared to the Chemicals industry average of 18.93x , and overvalued compared to the US market average ratio of 17.39x .

NYSE:NGVT Price Estimation Relative to Market, August 10th 2019
NYSE:NGVT Price Estimation Relative to Market, August 10th 2019

After looking at NGVT’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 Ingevity, 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 20.28x and expected year-on-year earnings growth of 14% give Ingevity a higher PEG ratio of 1.48x. So, when we include the growth factor in our analysis, Ingevity appears slightly overvalued , based on its fundamentals.

What this means for you:

NGVT’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 NGVT’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 NGVT 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 NGVT’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.