Is Tamarack Valley Energy Ltd’s (TSE:TVE) Growth Strong Enough To Justify Its May Share Price?

Looking at Tamarack Valley Energy Ltd’s (TSE:TVE) fundamentals some investors are wondering if its last closing price of CA$2.42 represents a good value for money for this high growth stock. Below I will be talking through a basic metric which will help answer this question.

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

Check out our latest analysis for Tamarack Valley Energy

What are the future expectations?

If you are bullish about Tamarack Valley Energy’s growth potential then you are certainly not alone. The consensus forecast from 8 analysts is extremely positive with earnings forecasted to rise significantly from today’s level of CA$0.133 to CA$0.264 over the next three years. This results in an annual growth rate of 32%, on average, which signals a market-beating outlook in the upcoming years.

Is TVE’s share price justified by its earnings growth?

Tamarack Valley Energy is available at price-to-earnings ratio of 18.21x, showing us it is overvalued based on current earnings compared to the Oil and Gas industry average of 14.34x , and overvalued compared to the CA market average ratio of 14.85x .

TSX:TVE Price Estimation Relative to Market, May 17th 2019
TSX:TVE Price Estimation Relative to Market, May 17th 2019

We understand TVE seems to be overvalued based on its current earnings, compared to its industry peers. However, seeing as Tamarack Valley 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 18.21x and expected year-on-year earnings growth of 32% give Tamarack Valley Energy a very low PEG ratio of 0.56x. This tells us that when we include its growth in our analysis Tamarack Valley Energy’s stock can be considered relatively cheap , based on its fundamentals.

What this means for you:

TVE’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 TVE’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 TVE 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 TVE’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.