Enbridge Income Fund Holdings Inc (TSE:ENF) is considered a high-growth stock, but its last closing price of CA$32.72 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 ENF’s expected growth over the next few years.
What can we expect from Enbridge Income Fund Holdings in the future?
One reason why investors are attracted to ENF is the high growth potential in the near future. Expectations from 4 analysts are extremely bullish with earnings per share estimated to rise from today’s level of CA$1.508 to CA$2.819 over the next three years. This indicates an estimated earnings growth rate of 25.69% per year, on average, which signals a market-beating outlook in the upcoming years.
Is ENF’s share price justifiable by its earnings growth?
As the legendary value investor Ben Graham once said, “Price is what you pay, value is what you get.” Enbridge Income Fund Holdings is trading at price-to-earnings (PE) ratio of 21.7x, which tells us the stock is overvalued based on current earnings compared to the oil and gas industry average of 21.15x , and overvalued compared to the CA market average ratio of 16.52x . This multiple is a median of profitable companies of 25 Oil and Gas companies in CA including Primeline Energy Holdings, Wescan Energy and McChip Resources.
We understand ENF seems to be overvalued based on its current earnings, compared to its industry peers. However, seeing as Enbridge Income Fund Holdings 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 21.7x and expected year-on-year earnings growth of 25.69% give Enbridge Income Fund Holdings a low PEG ratio of 0.84x. This means that, when we account for Enbridge Income Fund Holdings’s growth, the stock can be viewed as fairly valued , based on fundamental analysis.
What this means for you:
ENF’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: Is ENF’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 ENF 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 ENF’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.