Is NuVista Energy Ltd.'s (TSE:NVA) Growth Strong Enough To Justify Its June Share Price?

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

NuVista Energy Ltd. (TSE:NVA) is considered a high-growth stock, but its last closing price of CA$2.58 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.

Check out our latest analysis for NuVista Energy

Should you get excited about NVA's future?

If you are bullish about NuVista Energy's growth potential then you are certainly not alone. The consensus forecast from 4 analysts is extremely bullish with earnings per share estimated to surge from current levels of CA$0.383 to CA$0.432 over the next three years. This results in an annual growth rate of 23%, on average, which indicates an exceedlingly positive future in the near term.

Can NVA's share price be justified by its earnings growth?

NuVista Energy is trading at quite low price-to-earnings (PE) ratio of 6.73x. This tells us the stock is undervalued relative to the current CA market average of 15.07x , and undervalued based on its latest annual earnings update compared to the Oil and Gas average of 12.33x .

NuVista Energy's price-to-earnings ratio stands at 6.73x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. However, seeing as NuVista Energy 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 6.73x and expected year-on-year earnings growth of 23% give NuVista Energy an extremely low PEG ratio of 0.29x. This tells us that when we include its growth in our analysis NuVista Energy's stock can be considered relatively cheap , based on the fundamentals.

What this means for you:

NVA'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 NVA’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 NVA 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 NVA'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.