Is Progress Werk Oberkirch AG’s (FRA:PWO) Future Growth Already Accounted For In Today’s Price?

Progress Werk Oberkirch AG (FRA:PWO) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of €26.7 is based on unrealistic expectations. Below I will be talking through a basic metric which will help answer this question.

See our latest analysis for Progress Werk Oberkirch

Has the PWO train has slowed down?

Progress Werk Oberkirch is poised for significantly high earnings growth in the near future. Expectations from 2 analysts are extremely bullish with earnings per share estimated to surge from current levels of €3.129 to €3.972 over the next three years. This indicates an estimated earnings growth rate of 15% per year, on average, which signals a market-beating outlook in the upcoming years.

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

Progress Werk Oberkirch is trading at quite low price-to-earnings (PE) ratio of 8.53x. This tells us the stock is undervalued relative to the current DE market average of 19.31x , and undervalued based on its latest annual earnings update compared to the Auto Components average of 10.01x .

DB:PWO Price Estimation Relative to Market, April 11th 2019
DB:PWO Price Estimation Relative to Market, April 11th 2019

We already know that PWO appears to be undervalued based on its PE ratio, compared to the industry average. However, to properly examine the value of a high-growth stock such as Progress Werk Oberkirch, 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 8.53x and expected year-on-year earnings growth of 15% give Progress Werk Oberkirch a very low PEG ratio of 0.56x. This tells us that when we include its growth in our analysis Progress Werk Oberkirch’s stock can be considered relatively cheap , based on fundamental analysis.

What this means for you:

PWO’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:

  1. Financial Health: Are PWO’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 PWO 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 PWO’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.