Growth expectations for Altran Technologies S.A. (EPA:ALT) are high, but many investors are starting to ask whether its last close at €10.77 can still be rationalized by the future potential. Below I will be talking through a basic metric which will help answer this question.
Should you get excited about ALT’s future?
The excitement around Altran Technologies’s growth potential is not unfounded. Expectations from 9 analysts are extremely positive with earnings per share estimated to rise from today’s level of €0.500 to €0.931 over the next three years. On average, this leads to a growth rate of 32% each year, which illustrates a highly optimistic outlook in the near term.
Is ALT available at a good price after accounting for its growth?
ALT is available at a PE (price-to-earnings) ratio of 21.53x today, which tells us the stock is overvalued based on current earnings compared to the IT industry average of 18.3x , and overvalued compared to the FR market average ratio of 16.1x .
We understand ALT seems to be overvalued based on its current earnings, compared to its industry peers. But, to properly examine the value of a high-growth stock such as Altran Technologies, 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 21.53x and expected year-on-year earnings growth of 32% give Altran Technologies a very low PEG ratio of 0.66x. This means that, when we account for Altran Technologies’s growth, the stock can be viewed as relatively cheap , based on the fundamentals.
What this means for you:
ALT’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 ALT’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 ALT 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 ALT’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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