KPS AG (FRA:KSC): Is Growth Priced In?

KPS AG (FRA:KSC) is considered a high growth stock. However its last closing price of €7.35 left investors wondering whether this growth has already been factored into the share price. Below I will be talking through a basic metric which will help answer this question.

See our latest analysis for KPS

What can we expect from KSC in the future?

If you are bullish about KPS’s growth potential then you are certainly not alone. Expectations from 5 analysts are extremely bullish with earnings per share estimated to surge from current levels of €0.314 to €0.599 over the next three years. This results in an annual growth rate of 23%, on average, which indicates an exceedlingly positive future in the near term.

Is KSC available at a good price after accounting for its growth?

KPS is available at price-to-earnings ratio of 23.39x, showing us it is undervalued based on its latest annual earnings update compared to the IT average of 26.06x , and overvalued compared to the DE market average ratio of 20.03x .

DB:KSC Price Estimation Relative to Market, July 30th 2019
DB:KSC Price Estimation Relative to Market, July 30th 2019

KPS’s price-to-earnings ratio stands at 23.39x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. But, to be able to properly assess the value of a high-growth stock such as KPS, 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 23.39x and expected year-on-year earnings growth of 23% give KPS an acceptable PEG ratio of 1.03x. So, when we include the growth factor in our analysis, KPS appears slightly overvalued , based on fundamental analysis.

What this means for you:

KSC’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 KSC’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 KSC 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 KSC’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.