Is It Too Late To Buy Banca Monte dei Paschi di Siena S.p.A. (BIT:BMPS) At Its September Price?

Banca Monte dei Paschi di Siena S.p.A. (BIT:BMPS) is considered a high growth stock. However its last closing price of €1.605 left investors wondering whether this growth has already been factored into the share price. Below I will be talking through a basic metric which will help answer this question.

Check out our latest analysis for Banca Monte dei Paschi di Siena

What are the future expectations?

One reason why investors are attracted to BMPS is the high growth potential in the near future. The consensus forecast from 4 analysts is extremely positive with earnings forecasted to rise significantly from today’s level of €0.143 to €0.267 over the next three years. This results in an annual growth rate of 19%, on average, which illustrates a highly optimistic outlook in the near term.

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

Banca Monte dei Paschi di Siena is trading at quite low price-to-earnings (PE) ratio of 11.22x. This tells us the stock is undervalued relative to the current IT market average of 16.33x , and overvalued based on current earnings compared to the Banks industry average of 8.57x .

BIT:BMPS Price Estimation Relative to Market, September 12th 2019
BIT:BMPS Price Estimation Relative to Market, September 12th 2019

We understand BMPS seems to be overvalued based on its current earnings, compared to its industry peers. However, to properly examine the value of a high-growth stock such as Banca Monte dei Paschi di Siena, 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 11.22x and expected year-on-year earnings growth of 19% give Banca Monte dei Paschi di Siena a very low PEG ratio of 0.59x. This tells us that when we include its growth in our analysis Banca Monte dei Paschi di Siena’s stock can be considered relatively cheap , based on the fundamentals.

What this means for you:

BMPS’s current undervaluation could signal a potential buying opportunity to increase your exposure to the stock, or it you’re a potential investor, now may 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 BMPS’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 BMPS 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 BMPS’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.