Is N.V. Nederlandsche Apparatenfabriek Nedap (AMS:NEDAP) Undervalued After Accounting For Its Future Growth?

N.V. Nederlandsche Apparatenfabriek Nedap (AMS:NEDAP) is considered a high growth stock. However its last closing price of €45.5 left investors wondering whether this growth has already been factored into the share price. 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 N.V. Nederlandsche Apparatenfabriek Nedap

Can we expect NEDAP to keep growing?

Analysts are predicting good growth prospects for N.V. Nederlandsche Apparatenfabriek Nedap over the next couple of years. Expectations from 2 analysts are certainly positive with earnings forecasted to rise significantly from today’s level of €2.339 to €4.26 over the next three years. On average, this leads to a growth rate of 14% each year, which illustrates an optimistic outlook in the near term.

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

As the legendary value investor Ben Graham once said, “Price is what you pay, value is what you get.” N.V. Nederlandsche Apparatenfabriek Nedap is trading at price-to-earnings (PE) ratio of 19.45x, which tells us the stock is overvalued based on current earnings compared to the Electronic industry average of 15.15x , and overvalued compared to the NL market average ratio of 18.69x .

ENXTAM:NEDAP Price Estimation Relative to Market, September 11th 2019
ENXTAM:NEDAP Price Estimation Relative to Market, September 11th 2019

We understand NEDAP 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 N.V. Nederlandsche Apparatenfabriek Nedap, 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 19.45x and expected year-on-year earnings growth of 14% give N.V. Nederlandsche Apparatenfabriek Nedap a higher PEG ratio of 1.38x. Based on this growth, N.V. Nederlandsche Apparatenfabriek Nedap’s stock can be considered slightly overvalued , based on fundamental analysis.

What this means for you:

NEDAP’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 NEDAP’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 NEDAP 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 NEDAP’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.