Owens Corning (NYSE:OC): Can Growth Justify Its September Share Price?

Owens Corning (NYSE:OC) is considered a high-growth stock, but its last closing price of $55.74 left some investors wondering if this high future earnings potential can be rationalized by its current price tag. Below I will be talking through a basic metric which will help answer this question.

Check out our latest analysis for Owens Corning

What can we expect from Owens Corning in the future?

Investors in Owens Corning 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. The consensus forecast from 16 analysts is certainly positive with earnings per share estimated to surge from current levels of $4.696 to $5.311 over the next three years. This results in an annual growth rate of 12%, on average, which signals a market-beating outlook in the upcoming years.

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

Stocks like Owens Corning, with a price-to-earnings (P/E) ratio of 11.87x, always catch the eye of investors on the hunt for a bargain. In isolation, this metric can be a bit too simplistic but in comparison to benchmarks, it tells us that OC is undervalued relative to the current US market average of 17.29x , and undervalued based on its latest annual earnings update compared to the Building average of 18.52x .

NYSE:OC Price Estimation Relative to Market, September 5th 2019
NYSE:OC Price Estimation Relative to Market, September 5th 2019

Given that OC’s price-to-earnings of 11.87x lies below the industry average, this already indicates that the company could be potentially undervalued. However, seeing as Owens Corning is perceived as a high-growth stock, we must also account for its earnings growth, which is captured in the PEG ratio. A PE ratio of 11.87x and expected year-on-year earnings growth of 12% give Owens Corning a low PEG ratio of 0.97x. So, when we include the growth factor in our analysis, Owens Corning appears fairly valued , based on its fundamentals.

What this means for you:

OC’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 OC’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 OC 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 OC’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.