Auswide Bank Ltd (ASX:ABA) is considered a high-growth stock, but its last closing price of A$5.49 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 Auswide Bank
Has the ABA train has slowed down?According to the analysts covering the company, the following few years should bring about good growth prospects for Auswide Bank. Expectations from 2 analysts are buoyant with earnings per share estimated to rise from today’s level of A$0.402 to A$0.531 over the next three years. This indicates an estimated earnings growth rate of 13.10% per year, on average, which signals a market-beating outlook in the upcoming years.
Is ABA’s share price justifiable by its earnings growth?
Stocks like Auswide Bank, with a price-to-earnings (P/E) ratio of 13.66x, 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 ABA is undervalued relative to the current AU market average of 17.08x , and undervalued based on its latest annual earnings update compared to the mortgage average of 18.36x .
We already know that ABA appears to be undervalued based on its PE ratio, compared to the industry average. But, to be able to properly assess the value of a high-growth stock such as Auswide Bank, 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 13.66x and expected year-on-year earnings growth of 13.10% give Auswide Bank an acceptable PEG ratio of 1.04x. This tells us that when we include its growth in our analysis Auswide Bank’s stock can be considered slightly overvalued , based on fundamental analysis.
What this means for you:
ABA’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 highly recommend you to complete your research by taking a look at the following:
- Financial Health: Is ABA’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 ABA 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 ABA’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.