Verkkokauppa.com Oyj (HEL:VERK) closed yesterday at €3.59, which left some investors asking whether the high earnings potential can still be justified at this price. Below I will be talking through a basic metric which will help answer this question.
Can we expect VERK to keep growing?
Analysts are predicting good growth prospects for Verkkokauppa.com Oyj over the next couple of years. Expectations from 4 analysts are certainly positive with earnings per share estimated to surge from current levels of €0.201 to €0.292 over the next three years. On average, this leads to a growth rate of 14% each year, which indicates a solid future in the near term.
Is VERK’s share price justified by its earnings growth?
Verkkokauppa.com Oyj is available at price-to-earnings ratio of 17.87x, showing us it is undervalued based on its latest annual earnings update compared to the Online Retail average of 21.04x , and undervalued relative to the current FI market average of 20.43x .
We already know that VERK appears to be undervalued based on its PE ratio, compared to the industry average. But, seeing as Verkkokauppa.com Oyj 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 17.87x and expected year-on-year earnings growth of 14% give Verkkokauppa.com Oyj a higher PEG ratio of 1.26x. This means that, when we account for Verkkokauppa.com Oyj’s growth, the stock can be viewed as slightly overvalued , based on its fundamentals.
What this means for you:
VERK’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: Are VERK’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 VERK 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 VERK’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.
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