Does Wagners Holding Company Limited’s (ASX:WGN) Stock Price Account For Its Growth?

Wagners Holding Company Limited (ASX:WGN) is considered a high growth stock. However its last closing price of A$1.585 left investors wondering whether this growth has already been factored into the share price. Below I will be talking through a basic metric which will help answer this question.

See our latest analysis for Wagners Holding

How is Wagners Holding going to perform in the future?

Wagners Holding’s growth potential is very attractive. Expectations from 4 analysts are extremely bullish with earnings per share estimated to surge from current levels of A$0.0994 to A$0.145 over the next three years. This indicates an estimated earnings growth rate of 20% per year, on average, which indicates an exceedlingly positive future in the near term.

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

Stocks like Wagners Holding, with a price-to-earnings (P/E) ratio of 15.95x, always catch the eye of investors on the hunt for a bargain. In isolation, this metric can be a bit too simplistic but in comparison to benchmarks, it tells us that WGN is overvalued compared to the AU market average ratio of 15.68x , and overvalued based on current earnings compared to the Basic Materials industry average of 14.35x .

ASX:WGN Price Estimation Relative to Market, August 10th 2019
ASX:WGN Price Estimation Relative to Market, August 10th 2019

We understand WGN seems to be overvalued based on its current earnings, compared to its industry peers. But, since Wagners Holding is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 15.95x and expected year-on-year earnings growth of 20% give Wagners Holding a very low PEG ratio of 0.79x. So, when we include the growth factor in our analysis, Wagners Holding appears relatively cheap , based on the fundamentals.

What this means for you:

WGN’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 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.