Is EQT Holdings Limited's (ASX:EQT) Growth Strong Enough To Justify Its August Share Price?

Growth expectations for EQT Holdings Limited (ASX:EQT) are high, but many investors are starting to ask whether its last close at A$29.96 can still be rationalized by the future potential. Let’s look into this by assessing EQT's expected growth over the next few years.

Check out our latest analysis for EQT Holdings

What can we expect from EQT in the future?

According to the analysts covering the company, the following few years should bring about good growth prospects for EQT Holdings. The consensus forecast from 2 analysts is certainly positive with earnings per share estimated to rise from today's level of A$1.049 to A$1.37 over the next three years. This indicates an estimated earnings growth rate of 11% per year, on average, which signals a market-beating outlook in the upcoming years.

Can EQT's share price be justified by its earnings growth?

As the legendary value investor Ben Graham once said, “Price is what you pay, value is what you get.” EQT Holdings is trading at price-to-earnings (PE) ratio of 28.55x, which tells us the stock is overvalued based on current earnings compared to the Capital Markets industry average of 15.65x , and overvalued compared to the AU market average ratio of 15.75x .

We understand EQT seems to be overvalued based on its current earnings, compared to its industry peers. However, seeing as EQT 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 28.55x and expected year-on-year earnings growth of 11% give EQT Holdings a quite high PEG ratio of 2.7x. This tells us that when we include its growth in our analysis EQT Holdings's stock can be considered overvalued , based on fundamental analysis.

What this means for you:

EQT'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 EQT’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 EQT 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 EQT'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.