PWR Holdings Limited (ASX:PWH): Is Growth Priced In?

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PWR Holdings Limited (ASX:PWH) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of A$4.27 is based on unrealistic expectations. Below I will be talking through a basic metric which will help answer this question.

See our latest analysis for PWR Holdings

How is PWR Holdings going to perform in the future?

If you are bullish about PWR Holdings’s growth potential then you are certainly not alone. Expectations from 3 analysts are extremely bullish with earnings per share estimated to surge from current levels of A$0.121 to A$0.203 over the next three years. This results in an annual growth rate of 20%, on average, which illustrates a highly optimistic outlook in the near term.

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

PWR Holdings is looking rather expensive based on its price-to-earnings (PE) ratio of 35.35x. This illustrates that PWR Holdings is overvalued compared to the AU market average ratio of 16.4x , and overvalued based on current earnings compared to the Auto Components industry average of 13.62x .

ASX:PWH Price Estimation Relative to Market, July 8th 2019
ASX:PWH Price Estimation Relative to Market, July 8th 2019

After looking at PWH’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. However, seeing as PWR Holdings 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 35.35x and expected year-on-year earnings growth of 20% give PWR Holdings a higher PEG ratio of 1.74x. This means that, when we account for PWR Holdings’s growth, the stock can be viewed as a bit overvalued , based on the fundamentals.

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:

  1. 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.
  2. 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.
  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.