Want To Invest In ALS Limited (ASX:ALQ) Today? Read This First

Growth expectations for ALS Limited (ASX:ALQ) are high, but many investors are starting to ask whether its last close at A$7.7 can still be rationalized by the future potential. Let’s look into this by assessing ALQ's expected growth over the next few years. View out our latest analysis for ALS

>Where's the growth?

ALS's extremely high growth potential in the near future is attracting investors. The consensus forecast from 11 analysts is extremely bullish with earnings forecasted to rise significantly from today's level of A$0.131 to A$0.423 over the next three years. This results in an annual growth rate of 15.19%, on average, which signals a market-beating outlook in the upcoming years.

Is ALQ's share price justified by its earnings growth?

ALS is looking rather expensive based on its price-to-earnings (PE) ratio of 58.64x. This illustrates that ALS is overvalued compared to the AU market average ratio of 16.96x , and overvalued based on current earnings compared to the professional services industry average of 21.41x .

We already know that ALQ appears to be overvalued when compared to its industry average. However, to be able to properly assess the value of a high-growth stock such as ALS, 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 58.64x and expected year-on-year earnings growth of 15.19% give ALS a quite high PEG ratio of 3.86x. So, when we include the growth factor in our analysis, ALS appears overvalued , based on its fundamentals.

What this means for you:

ALQ'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: Is ALQ’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 ALQ 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 ALQ'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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.