Looking at Credicorp Ltd.’s (NYSE:BAP) fundamentals some investors are wondering if its last closing price of $212.24 represents a good value for money for this high growth stock. Below I will be talking through a basic metric which will help answer this question.
Has the BAP train slowed down?
Analysts are predicting good growth prospects for Credicorp over the next couple of years. The consensus forecast from 9 analysts is certainly positive with earnings per share estimated to rise from today’s level of PEN52.433 to PEN69.168 over the next three years. This results in an annual growth rate of 12%, on average, which signals a market-beating outlook in the upcoming years.
Can BAP’s share price be justified by its earnings growth?
Credicorp is trading at quite low price-to-earnings (PE) ratio of 13.55x. This tells us the stock is undervalued relative to the current US market average of 17.96x , and overvalued based on current earnings compared to the Banks industry average of 12.47x .
After looking at BAP’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. However, to be able to properly assess the value of a high-growth stock such as Credicorp, we must incorporate its earnings growth in our valuation. The PEG ratio is a great calculation to take account of growth in the stock’s valuation. A PE ratio of 13.55x and expected year-on-year earnings growth of 12% give Credicorp an acceptable PEG ratio of 1.15x. Based on this growth, Credicorp’s stock can be considered slightly overvalued , based on its fundamentals.
What this means for you:
BAP’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:
- Financial Health: Are BAP’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 BAP 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 BAP’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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