Looking at PWR Holdings Limited’s (ASX:PWH) fundamentals some investors are wondering if its last closing price of A$3.55 represents a good value for money for this high growth stock. Below I will be talking through a basic metric which will help answer this question.
Can we expect PWH to keep growing?
PWR Holdings’s growth potential is very attractive. Expectations from 2 analysts are extremely positive with earnings per share estimated to rise from today’s level of A$0.121 to A$0.203 over the next three years. On average, this leads to a growth rate of 20% each year, which indicates an exceedlingly positive future in the near term.
Is PWH’s share price justifiable by its earnings growth?
PWH is available at a PE (price-to-earnings) ratio of 29.39x today, which tells us the stock is overvalued based on current earnings compared to the Auto Components industry average of 15.06x , and overvalued compared to the AU market average ratio of 16.19x .
We understand PWH seems to be overvalued based on its current earnings, compared to its industry peers. However, since PWR Holdings is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 29.39x and expected year-on-year earnings growth of 20% give PWR Holdings a higher PEG ratio of 1.45x. So, when we include the growth factor in our analysis, PWR Holdings appears slightly overvalued , based on fundamental analysis.
What this means for you:
PWH’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:
- Financial Health: Are PWH’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.
- Past Track Record: Has PWH 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 PWH’s historicals for more clarity.
- 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 email@example.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.