Is Roche Holding AG (VTX:ROG) Undervalued After Accounting For Its Future Growth?

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Roche Holding AG (VTX:ROG) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of CHF276.65 is based on unrealistic expectations. Let’s look into this by assessing ROG’s expected growth over the next few years.

Check out our latest analysis for Roche Holding

Has the ROG train has slowed down?

According to the analysts covering the company, the following few years should bring about good growth prospects for Roche Holding. Expectations from 18 analysts are bullish with earnings per share estimated to surge from current levels of CHF12.295 to CHF16.915 over the next three years. This indicates an estimated earnings growth rate of 10% per year, on average, which indicates a solid future in the near term.

Is ROG’s share price justifiable by its earnings growth?

Roche Holding is available at price-to-earnings ratio of 22.5x, showing us it is undervalued based on its latest annual earnings update compared to the Pharmaceuticals average of 22.85x , and overvalued compared to the CH market average ratio of 18.35x .

SWX:ROG Price Estimation Relative to Market, July 9th 2019
SWX:ROG Price Estimation Relative to Market, July 9th 2019

Roche Holding’s price-to-earnings ratio stands at 22.5x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. But, seeing as Roche Holding 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 22.5x and expected year-on-year earnings growth of 10% give Roche Holding a quite high PEG ratio of 2.23x. Based on this growth, Roche Holding’s stock can be considered overvalued , based on the fundamentals.

What this means for you:

ROG’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 urge you to complete your research by taking a look at the following:

  1. Financial Health: Are ROG’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 ROG 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 ROG’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.