Reliance Worldwide Corporation Limited (ASX:RWC): Can Growth Justify Its July Share Price?

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Reliance Worldwide Corporation Limited (ASX:RWC) is considered a high growth stock. However its last closing price of A$3.65 left investors wondering whether this growth has already been factored into the share price. Let’s look into this by assessing RWC’s expected growth over the next few years.

View our latest analysis for Reliance Worldwide

What are the future expectations?

Reliance Worldwide’s extremely high growth potential in the near future is attracting investors. The consensus forecast from 10 analysts is extremely positive with earnings per share estimated to surge from current levels of A$0.135 to A$0.241 over the next three years. This indicates an estimated earnings growth rate of 15% per year, on average, which indicates an exceedlingly positive future in the near term.

Can RWC’s share price be justified by its earnings growth?

RWC is available at a PE (price-to-earnings) ratio of 27.09x today, which tells us the stock is overvalued based on current earnings compared to the Building industry average of 18.02x , and overvalued compared to the AU market average ratio of 15.95x .

ASX:RWC Price Estimation Relative to Market, July 2nd 2019
ASX:RWC Price Estimation Relative to Market, July 2nd 2019

We understand RWC seems to be overvalued based on its current earnings, compared to its industry peers. However, seeing as Reliance Worldwide 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 27.09x and expected year-on-year earnings growth of 15% give Reliance Worldwide a higher PEG ratio of 1.76x. So, when we include the growth factor in our analysis, Reliance Worldwide appears a bit overvalued , based on the fundamentals.

What this means for you:

RWC’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:

  1. Financial Health: Are RWC’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 RWC 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 RWC’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.