Metro Bank PLC (LON:MTRO) is considered a high-growth stock, but its last closing price of £33.5 left some investors wondering if this high future earnings potential can be rationalized by its current price tag. Below I will be talking through a basic metric which will help answer this question. See our latest analysis for Metro Bank
Where’s the growth?Metro Bank is poised for extremely high earnings growth in the near future. Expectations from 10 analysts are extremely positive with earnings per share estimated to rise from today’s level of £0.128 to £1.975 over the next three years. On average, this leads to a growth rate of 43.61% each year, which indicates an exceedlingly positive future in the near term.
Is MTRO available at a good price after accounting for its growth?
Metro Bank is available at price-to-earnings ratio of 262.1x, showing us it is overvalued based on current earnings compared to the banks industry average of 11.68x , and overvalued compared to the GB market average ratio of 17.31x .
We understand MTRO seems to be overvalued based on its current earnings, compared to its industry peers. However, to be able to properly assess the value of a high-growth stock such as Metro Bank, 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 262.1x and expected year-on-year earnings growth of 43.61% give Metro Bank a punchy PEG ratio of 6.01x. This tells us that when we include its growth in our analysis Metro Bank’s stock can be considered somewhat overvalued , based on the fundamentals.
What this means for you:
MTRO’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: Is MTRO’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 MTRO 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 MTRO’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.