Does Shawcor Ltd's (TSE:SCL) Stock Price Account For Its Growth?

Shawcor Ltd (TSX:SCL) closed yesterday at CA$24.77, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s take a look at some key metrics to determine whether there's any value here for current and potential future investors. View our latest analysis for Shawcor

What are the future expectations?

Shawcor's growth potential is very attractive. The consensus forecast from 7 analysts is extremely bullish with earnings per share estimated to rise from today's level of CA$1.02 to CA$2.133 over the next three years. On average, this leads to a growth rate of 33.73% each year, which indicates an exceedlingly positive future in the near term.

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

SCL is available at a PE (price-to-earnings) ratio of 24.29x today, which tells us the stock is overvalued based on current earnings compared to the energy services industry average of 22.74x , and overvalued compared to the CA market average ratio of 16.07x .

We already know that SCL appears to be overvalued when compared to its industry average. But, to be able to properly assess the value of a high-growth stock such as Shawcor, 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 24.29x and expected year-on-year earnings growth of 33.73% give Shawcor a very low PEG ratio of 0.72x. Based on this growth, Shawcor's stock can be considered relatively cheap , based on the fundamentals.

What this means for you:

SCL'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: Is SCL’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 SCL 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 SCL'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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.