Does The Hype Around James Hardie Industries plc's (ASX:JHX) Growth Justify Its June Share Price?

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James Hardie Industries plc (ASX:JHX) is considered a high-growth stock, but its last closing price of A$18.44 left some investors wondering if this high future earnings potential can be rationalized by its current price tag. Below I will be talking through a basic metric which will help answer this question.

Check out our latest analysis for James Hardie Industries

Should you get excited about JHX's future?

James Hardie Industries's extremely high growth potential in the near future is attracting investors. The consensus forecast from 10 analysts is extremely positive with earnings forecasted to rise significantly from today's level of $0.518 to $0.892 over the next three years. This results in an annual growth rate of 16%, on average, which indicates an exceedlingly positive future in the near term.

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

James Hardie Industries is available at price-to-earnings ratio of 24.77x, showing us it is overvalued based on current earnings compared to the Basic Materials industry average of 14.6x , and overvalued compared to the AU market average ratio of 16.21x .

We understand JHX seems to be overvalued based on its current earnings, compared to its industry peers. But, since James Hardie Industries is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 24.77x and expected year-on-year earnings growth of 16% give James Hardie Industries a higher PEG ratio of 1.56x. So, when we include the growth factor in our analysis, James Hardie Industries appears a bit overvalued , based on the fundamentals.

What this means for you:

JHX'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 JHX’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 JHX 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 JHX'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.