Is Rexel S.A. (EPA:RXL) Undervalued After Accounting For Its Future Growth?

Rexel S.A. (EPA:RXL) is considered a high growth stock. However its last closing price of €8.696 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.

See our latest analysis for Rexel

Where’s the growth?

Analysts are predicting good growth prospects for Rexel over the next couple of years. Expectations from 13 analysts are buoyant with earnings per share estimated to surge from current levels of €0.722 to €1.285 over the next three years. On average, this leads to a growth rate of 13% each year, which illustrates an optimistic outlook in the near term.

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

Rexel is trading at quite low price-to-earnings (PE) ratio of 12.05x. This tells us the stock is undervalued relative to the current FR market average of 16.81x , and undervalued based on its latest annual earnings update compared to the Trade Distributors average of 12.98x .

ENXTPA:RXL Price Estimation Relative to Market, August 19th 2019
ENXTPA:RXL Price Estimation Relative to Market, August 19th 2019

Given that RXL’s price-to-earnings of 12.05x lies below the industry average, this already indicates that the company could be potentially undervalued. But, to be able to properly assess the value of a high-growth stock such as Rexel, 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 12.05x and expected year-on-year earnings growth of 13% give Rexel a low PEG ratio of 0.96x. Based on this growth, Rexel’s stock can be considered fairly valued , based on its fundamentals.

What this means for you:

RXL’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 RXL’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 RXL 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 RXL’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.