Does Repsol, S.A.'s (BME:REP) April Stock Price Reflect Its Future Growth?

By
Simply Wall St
Published
April 09, 2019
BME:REP
Source: Shutterstock

Growth expectations for Repsol, S.A. (BME:REP) are high, but many investors are starting to ask whether its last close at €15.05 can still be rationalized by the future potential. Let’s look into this by assessing REP's expected growth over the next few years.

View our latest analysis for Repsol

What are the future expectations?

Analysts are predicting good growth prospects for Repsol over the next couple of years. The consensus forecast from 23 analysts is buoyant with earnings forecasted to rise significantly from today's level of €1.193 to €1.965 over the next three years. This indicates an estimated earnings growth rate of 11% per year, on average, which signals a market-beating outlook in the upcoming years.

Is REP available at a good price after accounting for its growth?

Repsol is trading at quite low price-to-earnings (PE) ratio of 12.62x. This tells us the stock is undervalued relative to the current ES market average of 17.73x , and overvalued based on current earnings compared to the Oil and Gas industry average of 10.39x .

BME:REP Price Estimation Relative to Market, April 10th 2019
BME:REP Price Estimation Relative to Market, April 10th 2019

After looking at REP's value based on current earnings, we can see it seems overvalued relative to other companies in the industry. However, to be able to properly assess the value of a high-growth stock such as Repsol, 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 12.62x and expected year-on-year earnings growth of 11% give Repsol an acceptable PEG ratio of 1.16x. This means that, when we account for Repsol's growth, the stock can be viewed as slightly overvalued , based on its fundamentals.

What this means for you:

REP'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:

  1. Financial Health: Are REP’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 REP 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 REP'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.

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