thyssenkrupp AG (XTRA:TKA) is considered a high-growth stock, but its last closing price of €22.89 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 thyssenkrupp
How is TKA going to perform in the future?thyssenkrupp’s growth potential is very attractive. The consensus forecast from 20 analysts is extremely positive with earnings forecasted to rise significantly from today’s level of €0.522 to €2.104 over the next three years. This results in an annual growth rate of 19.14%, on average, which signals a market-beating outlook in the upcoming years.
Is TKA’s share price justified by its earnings growth?
TKA is trading at quite a high price-to-earnings (PE) ratio of 43.85x. This tells us that thyssenkrupp is overvalued compared to the DE market average ratio of 18.45x , and overvalued based on current earnings compared to the metals and mining industry average of 12.71x .
After looking at TKA’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. But, since thyssenkrupp is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 43.85x and expected year-on-year earnings growth of 19.14% give thyssenkrupp a quite high PEG ratio of 2.29x. This tells us that when we include its growth in our analysis thyssenkrupp’s stock can be considered overvalued , based on fundamental analysis.
What this means for you:
TKA’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: Is TKA’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 TKA 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 TKA’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.