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SAF-Holland S.A. (FRA:SFQ) closed yesterday at €9.275, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s look into this by assessing SFQ’s expected growth over the next few years.
Has the SFQ train has slowed down?
Investors in SAF-Holland have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. Expectations from 12 analysts are certainly positive with earnings per share estimated to surge from current levels of €1.089 to €1.365 over the next three years. On average, this leads to a growth rate of 11% each year, which indicates a solid future in the near term.
Is SFQ’s share price justifiable by its earnings growth?
SAF-Holland is available at a price-to-earnings ratio of 8.52x, showing us it is undervalued relative to the current DE market average of 19.58x , and undervalued based on its latest annual earnings update compared to the Auto Components average of 12.95x .
Given that SFQ’s price-to-earnings of 8.52x lies below the industry average, this already indicates that the company could be potentially undervalued. However, to be able to properly assess the value of a high-growth stock such as SAF-Holland, 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 8.52x and expected year-on-year earnings growth of 11% give SAF-Holland a very low PEG ratio of 0.79x. This means that, when we account for SAF-Holland’s growth, the stock can be viewed as relatively cheap , based on the fundamentals.
What this means for you:
SFQ’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 highly recommend you to complete your research by taking a look at the following:
- Financial Health: Are SFQ’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 SFQ 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 SFQ’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.
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 email@example.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.