SGS SA (VTX:SGSN) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of CHF2597 is based on unrealistic expectations. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.
Has the SGSN train has slowed down?According to the analysts covering the company, the following few years should bring about good growth prospects for SGS. The consensus forecast from 19 analysts is bullish with earnings forecasted to rise significantly from today’s level of CHF81.722 to CHF114.141 over the next three years. On average, this leads to a growth rate of 10.36% each year, which signals a market-beating outlook in the upcoming years.
Is SGSN’s share price justified by its earnings growth?
SGSN is trading at quite a high price-to-earnings (PE) ratio of 31.78x. This tells us that SGS is overvalued compared to the CH market average ratio of 20.8x , and overvalued based on current earnings compared to the professional services industry average of 20x . This multiple is a median of profitable companies of 6 Professional Services companies in CH including Adecco Group, Adecco Group and Randstad.
After looking at SGSN’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. However, to properly examine the value of a high-growth stock such as SGS, 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 31.78x and expected year-on-year earnings growth of 10.36% give SGS a quite high PEG ratio of 3.07x. This tells us that when we include its growth in our analysis SGS’s stock can be considered overvalued , based on fundamental analysis.
What this means for you:
SGSN’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:
- Financial Health: Are SGSN’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 SGSN 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 SGSN’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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.