Does Home Capital Group Inc's (TSE:HCG) September Stock Price Reflect Its Future Growth?

Home Capital Group Inc (TSE:HCG) closed yesterday at CA$14.96, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s take a look at some key metrics to determine whether there's any value here for current and potential future investors.

View our latest analysis for Home Capital Group

Where's the growth?

Investors in Home Capital Group 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 7 analysts is bullish with earnings forecasted to rise significantly from today's level of CA$1.554 to CA$2.017 over the next three years. This indicates an estimated earnings growth rate of 10.5% per year, on average, which illustrates an optimistic outlook in the near term.

Is HCG's share price justifiable by its earnings growth?

Home Capital Group is trading at quite low price-to-earnings (PE) ratio of 9.63x. This tells us the stock is undervalued relative to the current CA market average of 15.87x , and undervalued based on its latest annual earnings update compared to the mortgage average of 12.04x . This multiple is a median of profitable companies of 9 Mortgage companies in CA including Equitable Group, Genworth MI Canada and MCAN Mortgage.

Home Capital Group's price-to-earnings ratio stands at 9.63x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. However, seeing as Home Capital Group 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 9.63x and expected year-on-year earnings growth of 10.5% give Home Capital Group a low PEG ratio of 0.92x. So, when we include the growth factor in our analysis, Home Capital Group appears fairly valued , based on its fundamentals.

What this means for you:

HCG'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 HCG’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 HCG 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 HCG'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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.