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Looking at RXP Services Limited’s (ASX:RXP) fundamentals some investors are wondering if its last closing price of A$0.54 represents a good value for money for this high growth stock. Below I will be talking through a basic metric which will help answer this question.
See our latest analysis for RXP Services
Should you get excited about RXP's future?
If you are bullish about RXP Services's growth potential then you are certainly not alone. Consensus expectations from market analysts are extremely positive with earnings per share estimated to rise from today's level of A$0.0505 to A$0.0860 over the next three years. On average, this leads to a growth rate of 20% each year, which indicates an exceedlingly positive future in the near term.
Can RXP's share price be justified by its earnings growth?
RXP Services is available at a price-to-earnings ratio of 10.7x, showing us it is undervalued relative to the current AU market average of 15.64x , and undervalued based on its latest annual earnings update compared to the IT average of 15.86x .
Given that RXP's price-to-earnings of 10.7x lies below the industry average, this already indicates that the company could be potentially undervalued. However, to be able to properly assess the value of a high-growth stock such as RXP Services, 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 10.7x and expected year-on-year earnings growth of 20% give RXP Services a very low PEG ratio of 0.53x. So, when we include the growth factor in our analysis, RXP Services appears relatively cheap , based on fundamental analysis.
What this means for you:
RXP'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:
- Financial Health: Are RXP’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.
- Past Track Record: Has RXP 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 RXP's historicals for more clarity.
- 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.