Does Capgemini SE’s (EPA:CAP) April Stock Price Reflect Its Future Growth?

Capgemini SE (EPA:CAP) is considered a high growth stock. However its last closing price of €111.4 left investors wondering whether this growth has already been factored into the share price. Let’s look into this by assessing CAP’s expected growth over the next few years.

Check out our latest analysis for Capgemini

What can we expect from CAP in the future?

According to the analysts covering the company, the following few years should bring about good growth prospects for Capgemini. The consensus forecast from 15 analysts is certainly positive with earnings per share estimated to rise from today’s level of €4.369 to €6.626 over the next three years. This results in an annual growth rate of 14%, on average, which indicates a solid future in the near term.

Is CAP’s share price justified by its earnings growth?

CAP is trading at price-to-earnings (PE) ratio of 25.5x, which suggests that Capgemini is overvalued based on current earnings compared to the IT industry average of 18.5x , and overvalued compared to the FR market average ratio of 16.02x .

ENXTPA:CAP Price Estimation Relative to Market, April 15th 2019
ENXTPA:CAP Price Estimation Relative to Market, April 15th 2019

We already know that CAP appears to be overvalued when compared to its industry average. But, to be able to properly assess the value of a high-growth stock such as Capgemini, 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 25.5x and expected year-on-year earnings growth of 14% give Capgemini a higher PEG ratio of 1.77x. This means that, when we account for Capgemini’s growth, the stock can be viewed as a bit overvalued , based on fundamental analysis.

What this means for you:

CAP’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 CAP’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 CAP 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 CAP’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.