Calian Group Ltd. (TSE:CGY): Is Growth Priced In?

Calian Group Ltd. (TSE:CGY) is considered a high-growth stock, but its last closing price of CA$33.51 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.

View our latest analysis for Calian Group

Where’s the growth?

Investors in Calian 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. Expectations from 4 analysts are buoyant with earnings forecasted to rise significantly from today’s level of CA$1.962 to CA$2.698 over the next three years. On average, this leads to a growth rate of 13% each year, which signals a market-beating outlook in the upcoming years.

Is CGY’s share price justifiable by its earnings growth?

CGY is trading at price-to-earnings (PE) ratio of 17.08x, which suggests that Calian Group is undervalued based on its latest annual earnings update compared to the Commercial Services average of 17.08x , and overvalued compared to the CA market average ratio of 15.49x .

TSX:CGY Price Estimation Relative to Market, July 22nd 2019
TSX:CGY Price Estimation Relative to Market, July 22nd 2019

Calian Group’s price-to-earnings ratio stands at 17.08x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. But, to be able to properly assess the value of a high-growth stock such as Calian Group, 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 17.08x and expected year-on-year earnings growth of 13% give Calian Group a higher PEG ratio of 1.32x. This means that, when we account for Calian Group’s growth, the stock can be viewed as slightly overvalued , based on the fundamentals.

What this means for you:

CGY’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 CGY’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 CGY 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 CGY’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.