Inside Secure SA (EPA:INSD) closed yesterday at €2.125, 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.
Check out our latest analysis for Inside Secure
What can we expect from Inside Secure in the future?
If you are bullish about Inside Secure's growth potential then you are certainly not alone. The consensus forecast from 2 analysts is extremely positive with earnings per share estimated to rise from today's level of $0.113 to $0.139 over the next three years. This indicates an estimated earnings growth rate of 39% per year, on average, which indicates an exceedlingly positive future in the near term.
Can INSD's share price be justified by its earnings growth?
Inside Secure is available at price-to-earnings ratio of 21.35x, showing us it is overvalued based on current earnings compared to the semiconductor industry average of 17.3x , and overvalued compared to the FR market average ratio of 15.49x . This multiple is a median of profitable companies of 5 Semiconductor companies in FR including MEMSCAP, Riber and X-FAB Silicon Foundries.
We understand INSD seems to be overvalued based on its current earnings, compared to its industry peers. However, to properly examine the value of a high-growth stock such as Inside Secure, 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 21.35x and expected year-on-year earnings growth of 39% give Inside Secure a very low PEG ratio of 0.54x. Based on this growth, Inside Secure's stock can be considered relatively cheap , based on its fundamentals.
What this means for you:
INSD'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 INSD’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 INSD 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 INSD'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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The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.