Is WSP Global Inc. (TSE:WSP) Undervalued After Accounting For Its Future Growth?

WSP Global Inc. (TSE:WSP) is considered a high-growth stock, but its last closing price of CA$71.77 left some investors wondering if this high future earnings potential can be rationalized by its current price tag. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.

View our latest analysis for WSP Global

Where’s the growth?

According to the analysts covering the company, the following few years should bring about good growth prospects for WSP Global. The consensus forecast from 13 analysts is certainly positive with earnings per share estimated to rise from today’s level of CA$2.704 to CA$3.563 over the next three years. This results in an annual growth rate of 14%, on average, which indicates a solid future in the near term.

Is WSP’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.” WSP Global is trading at price-to-earnings (PE) ratio of 26.54x, which tells us the stock is overvalued based on current earnings compared to the Construction industry average of 23.24x , and overvalued compared to the CA market average ratio of 14.02x .

TSX:WSP Price Estimation Relative to Market, August 20th 2019
TSX:WSP Price Estimation Relative to Market, August 20th 2019

After looking at WSP’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. But, since WSP Global is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 26.54x and expected year-on-year earnings growth of 14% give WSP Global a higher PEG ratio of 1.86x. So, when we include the growth factor in our analysis, WSP Global appears a bit overvalued , based on fundamental analysis.

What this means for you:

WSP’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 WSP’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 WSP 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 WSP’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.