Does Enbridge Inc.’s (TSE:ENB) Stock Price Account For Its Growth?

Enbridge Inc. (TSE:ENB) is considered a high-growth stock, but its last closing price of CA$48.72 left some investors wondering if this high future earnings potential can be rationalized by its current price tag. Let’s look into this by assessing ENB’s expected growth over the next few years.

Check out our latest analysis for Enbridge

What can we expect from ENB in the future?

Enbridge’s extremely high growth potential in the near future is attracting investors. The consensus forecast from 11 analysts is extremely bullish with earnings per share estimated to rise from today’s level of CA$1.459 to CA$2.886 over the next three years. This results in an annual growth rate of 35%, on average, which signals a market-beating outlook in the upcoming years.

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

As Warren Buffett’s right-hand man Charlie Munger said, “No matter how wonderful a business is, it’s not worth an infinite price.” Enbridge is available at price-to-earnings ratio of 33.4x, showing us it is overvalued compared to the CA market average ratio of 14.74x , and overvalued based on current earnings compared to the Oil and Gas industry average of 15.53x .

TSX:ENB Price Estimation Relative to Market, March 16th 2019
TSX:ENB Price Estimation Relative to Market, March 16th 2019

We already know that ENB appears to be overvalued when compared to its industry average. But, to properly examine the value of a high-growth stock such as Enbridge, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 33.4x and expected year-on-year earnings growth of 35% give Enbridge a low PEG ratio of 0.96x. This tells us that when we include its growth in our analysis Enbridge’s stock can be considered fairly valued , based on fundamental analysis.

What this means for you:

ENB’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 ENB’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 ENB 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 ENB’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.