Does The Hype Around Wagners Holding Company Limited’s (ASX:WGN) Growth Justify Its April Share Price?

Wagners Holding Company Limited (ASX:WGN) is considered a high growth stock. However its last closing price of A$2.28 left investors wondering whether this growth has already been factored into the share price. Let’s look into this by assessing WGN’s expected growth over the next few years.

See our latest analysis for Wagners Holding

How is WGN going to perform in the future?

Investors in Wagners Holding have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. The consensus forecast from 3 analysts is buoyant with earnings per share estimated to rise from today’s level of A$0.0994 to A$0.134 over the next three years. This results in an annual growth rate of 14%, on average, which illustrates an optimistic outlook in the near term.

Can WGN’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.” Wagners Holding is trading at price-to-earnings (PE) ratio of 22.95x, which tells us the stock is overvalued based on current earnings compared to the Basic Materials industry average of 15.8x , and overvalued compared to the AU market average ratio of 16.16x .

ASX:WGN Price Estimation Relative to Market, April 1st 2019
ASX:WGN Price Estimation Relative to Market, April 1st 2019

After looking at WGN’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. But, to be able to properly assess the value of a high-growth stock such as Wagners Holding, 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 22.95x and expected year-on-year earnings growth of 14% give Wagners Holding a higher PEG ratio of 1.6x. This tells us that when we include its growth in our analysis Wagners Holding’s stock can be considered a bit overvalued , based on its fundamentals.

What this means for you:

WGN’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 WGN’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. Valuation: What is WGN worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether WGN is currently mispriced by the market.
  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.