GR Engineering Services Limited (ASX:GNG): Can Growth Justify Its May Share Price?

GR Engineering Services Limited (ASX:GNG) is considered a high growth stock. However its last closing price of A$0.95 left investors wondering whether this growth has already been factored into the share price. Let’s look into this by assessing GNG’s expected growth over the next few years.

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

View our latest analysis for GR Engineering Services

How is GR Engineering Services going to perform in the future?

The excitement around GR Engineering Services’s growth potential is not unfounded. The consensus forecast from 2 analysts is extremely bullish with earnings per share estimated to rise from today’s level of A$0.0448 to A$0.0820 over the next three years. This results in an annual growth rate of 29%, on average, which illustrates a highly optimistic outlook in the near term.

Is GNG’s share price justifiable by its earnings growth?

GNG is trading at price-to-earnings (PE) ratio of 21.22x, which suggests that GR Engineering Services is overvalued based on current earnings compared to the Metals and Mining industry average of 12.34x , and overvalued compared to the AU market average ratio of 16.09x .

ASX:GNG Price Estimation Relative to Market, May 21st 2019
ASX:GNG Price Estimation Relative to Market, May 21st 2019

We understand GNG seems to be overvalued based on its current earnings, compared to its industry peers. However, seeing as GR Engineering Services 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 21.22x and expected year-on-year earnings growth of 29% give GR Engineering Services a very low PEG ratio of 0.72x. Based on this growth, GR Engineering Services’s stock can be considered relatively cheap , based on its fundamentals.

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 highly recommend 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.