Have Investors Priced In Whitecap Resources Inc.’s (TSE:WCP) Growth?

Looking at Whitecap Resources Inc.’s (TSE:WCP) fundamentals some investors are wondering if its last closing price of CA$5.64 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.

See our latest analysis for Whitecap Resources

Should you get excited about WCP’s future?

If you are bullish about Whitecap Resources’s growth potential then you are certainly not alone. Expectations from 4 analysts are extremely positive with earnings per share estimated to surge from current levels of CA$0.156 to CA$0.289 over the next three years. This indicates an estimated earnings growth rate of 31% per year, on average, which indicates an exceedlingly positive future in the near term.

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

WCP is trading at quite a high price-to-earnings (PE) ratio of 36.12x. This tells us that Whitecap Resources is overvalued compared to the CA market average ratio of 15.05x , and overvalued based on current earnings compared to the Oil and Gas industry average of 16.36x .

TSX:WCP Price Estimation Relative to Market, April 26th 2019
TSX:WCP Price Estimation Relative to Market, April 26th 2019

We understand WCP seems to be overvalued based on its current earnings, compared to its industry peers. However, to be able to properly assess the value of a high-growth stock such as Whitecap Resources, 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 36.12x and expected year-on-year earnings growth of 31% give Whitecap Resources an acceptable PEG ratio of 1.16x. This means that, when we account for Whitecap Resources’s growth, the stock can be viewed as slightly overvalued , based on the fundamentals.

What this means for you:

WCP’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 WCP’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 WCP 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 WCP’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.