Pembina Pipeline Corporation (TSE:PPL): Can Growth Justify Its June Share Price?

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Looking at Pembina Pipeline Corporation’s (TSE:PPL) fundamentals some investors are wondering if its last closing price of CA$49.09 represents a good value for money for this high growth stock. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.

Check out our latest analysis for Pembina Pipeline

What can we expect from Pembina Pipeline in the future?

According to the analysts covering the company, the following few years should bring about good growth prospects for Pembina Pipeline. Expectations from 11 analysts are bullish with earnings per share estimated to surge from current levels of CA$2.241 to CA$2.924 over the next three years. This results in an annual growth rate of 10%, on average, which indicates a solid future in the near term.

Is PPL available at a good price after accounting for its growth?

Pembina Pipeline is available at price-to-earnings ratio of 21.91x, showing us it is overvalued based on current earnings compared to the Oil and Gas industry average of 13.55x , and overvalued compared to the CA market average ratio of 15.18x .

TSX:PPL Price Estimation Relative to Market, June 21st 2019
TSX:PPL Price Estimation Relative to Market, June 21st 2019

We understand PPL seems to be overvalued based on its current earnings, compared to its industry peers. However, since Pembina Pipeline is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 21.91x and expected year-on-year earnings growth of 10% give Pembina Pipeline a quite high PEG ratio of 2.12x. Based on this growth, Pembina Pipeline’s stock can be considered overvalued , based on the fundamentals.

What this means for you:

PPL’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 PPL’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 PPL 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 PPL’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.