Does The Hype Around GR Engineering Services Limited's (ASX:GNG) Growth Justify Its September Share Price?

Looking at GR Engineering Services Limited’s (ASX:GNG) fundamentals some investors are wondering if its last closing price of A$0.92 represents a good value for money for this high growth stock. Let’s look into this by assessing GNG's expected growth over the next few years.

See our latest analysis for GR Engineering Services

Does the GNG train have any brakes?

One reason why investors are attracted to GNG is the high growth potential in the near future. Expectations from 2 analysts are extremely bullish with earnings forecasted to rise significantly from today's level of A$0.0425 to A$0.0850 over the next three years. On average, this leads to a growth rate of 24% each year, which signals a market-beating outlook in the upcoming years.

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

GNG is trading at price-to-earnings (PE) ratio of 21.63x, which suggests that GR Engineering Services is overvalued based on current earnings compared to the Metals and Mining industry average of 11.89x , and overvalued compared to the AU market average ratio of 17.2x .

We already know that GNG appears to be overvalued when compared to its industry average. However, to properly examine the value of a high-growth stock such as GR Engineering Services, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 21.63x and expected year-on-year earnings growth of 24% give GR Engineering Services a low PEG ratio of 0.89x. This tells us that when we include its growth in our analysis GR Engineering Services's stock can be considered fairly valued , based on fundamental analysis.

What this means for you:

GNG's current undervaluation could signal a potential buying opportunity to increase your exposure to the stock, or it you're a potential investor, now may 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 GNG’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 GNG 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 GNG'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.