Is SSP Group plc’s (LON:SSPG) Stock Available For A Good Price After Accounting For Growth?

Looking at SSP Group plc’s (LON:SSPG) fundamentals some investors are wondering if its last closing price of £7.09 represents a good value for money for this high growth stock. Let’s look into this by assessing SSPG’s expected growth over the next few years.

See our latest analysis for SSP Group

Exciting times ahead?

Investors in SSP Group have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. Expectations from 14 analysts are buoyant with earnings per share estimated to surge from current levels of £0.263 to £0.341 over the next three years. On average, this leads to a growth rate of 10% each year, which illustrates an optimistic outlook in the near term.

Is SSPG’s share price justifiable by its earnings growth?

SSPG is available at a PE (price-to-earnings) ratio of 26.96x today, which tells us the stock is overvalued based on current earnings compared to the Hospitality industry average of 21.43x , and overvalued compared to the GB market average ratio of 16.03x .

LSE:SSPG Price Estimation Relative to Market, August 20th 2019
LSE:SSPG Price Estimation Relative to Market, August 20th 2019

We already know that SSPG appears to be overvalued when compared to its industry average. But, to be able to properly assess the value of a high-growth stock such as SSP Group, 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 26.96x and expected year-on-year earnings growth of 10% give SSP Group a quite high PEG ratio of 2.66x. This tells us that when we include its growth in our analysis SSP Group’s stock can be considered overvalued , based on fundamental analysis.

What this means for you:

SSPG’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 SSPG’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 SSPG 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 SSPG’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.