Tahoe Resources Inc (TSX:THO) is considered a high-growth stock, but its last closing price of CA$6.09 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. See our latest analysis for Tahoe Resources
Can we expect THO to keep growing?Tahoe Resources’s growth potential is very attractive. The consensus forecast from 10 analysts is extremely positive with earnings per share estimated to surge from current levels of $0.261 to $0.625 over the next three years. This results in an annual growth rate of 27.27%, on average, which illustrates a highly optimistic outlook in the near term.
Is THO’s share price justified by its earnings growth?
As the legendary value investor Ben Graham once said, “Price is what you pay, value is what you get.” Tahoe Resources is trading at price-to-earnings (PE) ratio of 18.35x, which tells us the stock is overvalued based on current earnings compared to the metals and mining industry average of 10.45x , and overvalued compared to the CA market average ratio of 16.42x .
We already know that THO appears to be overvalued when compared to its industry average. However, to properly examine the value of a high-growth stock such as Tahoe Resources, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 18.35x and expected year-on-year earnings growth of 27.27% give Tahoe Resources a very low PEG ratio of 0.67x. So, when we include the growth factor in our analysis, Tahoe Resources appears relatively cheap , based on fundamental analysis.
What this means for you:
THO’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 urge you to complete your research by taking a look at the following:
- Financial Health: Is THO’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.
- Past Track Record: Has THO 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 THO’s historicals for more clarity.
- 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.