Is The Indian Hotels Company Limited (NSE:INDHOTEL) Undervalued After Accounting For Its Future Growth?

The Indian Hotels Company Limited (NSE:INDHOTEL) is considered a high growth stock. However its last closing price of ₹136.4 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 Indian Hotels

Can we expect INDHOTEL to keep growing?

One reason why investors are attracted to INDHOTEL is the high growth potential in the near future. Expectations from 9 analysts are extremely bullish with earnings forecasted to rise significantly from today’s level of ₹2.352 to ₹4.538 over the next three years. This indicates an estimated earnings growth rate of 29% per year, on average, which signals a market-beating outlook in the upcoming years.

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

Indian Hotels is looking rather expensive based on its price-to-earnings (PE) ratio of 57.92x. This illustrates that Indian Hotels is overvalued compared to the IN market average ratio of 13.61x , and overvalued based on current earnings compared to the Hospitality industry average of 19.11x .

NSEI:INDHOTEL Price Estimation Relative to Market, August 14th 2019
NSEI:INDHOTEL Price Estimation Relative to Market, August 14th 2019

We already know that INDHOTEL appears to be overvalued when compared to its industry average. But, since Indian Hotels is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 57.92x and expected year-on-year earnings growth of 29% give Indian Hotels a quite high PEG ratio of 2.01x. Based on this growth, Indian Hotels’s stock can be considered overvalued , based on fundamental analysis.

What this means for you:

INDHOTEL’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 urge you to complete your research by taking a look at the following:

  1. Financial Health: Are INDHOTEL’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 INDHOTEL 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 INDHOTEL’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.