Is OneSavings Bank Plc’s (LON:OSB) Growth Strong Enough To Justify Its July Share Price?

OneSavings Bank Plc (LON:OSB) is considered a high-growth stock, but its last closing price of £3.772 left some investors wondering if this high future earnings potential can be rationalized by its current price tag. Below I will be talking through a basic metric which will help answer this question.

Check out our latest analysis for OneSavings Bank

What can we expect from OneSavings Bank in the future?

Analysts are predicting good growth prospects for OneSavings Bank over the next couple of years. The consensus forecast from 8 analysts is bullish with earnings forecasted to rise significantly from today’s level of £0.555 to £0.730 over the next three years. This indicates an estimated earnings growth rate of 10% per year, on average, which indicates a solid future in the near term.

Can OSB’s share price be justified by its earnings growth?

OneSavings Bank is available at a price-to-earnings ratio of 6.79x, showing us it is undervalued relative to the current GB market average of 16.33x , and undervalued based on its latest annual earnings update compared to the Mortgage average of 7.31x .

LSE:OSB Price Estimation Relative to Market, July 27th 2019
LSE:OSB Price Estimation Relative to Market, July 27th 2019

OneSavings Bank’s price-to-earnings ratio stands at 6.79x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. However, to properly examine the value of a high-growth stock such as OneSavings Bank, 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 6.79x and expected year-on-year earnings growth of 10% give OneSavings Bank a very low PEG ratio of 0.68x. This tells us that when we include its growth in our analysis OneSavings Bank’s stock can be considered relatively cheap , based on the fundamentals.

What this means for you:

OSB’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 OSB’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 OSB 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 OSB’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.