Is Galliford Try plc’s (LON:GFRD) Future Growth Already Accounted For In Today’s Price?

Galliford Try plc (LON:GFRD) closed yesterday at £6.89, 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.

View our latest analysis for Galliford Try

What can we expect from Galliford Try in the future?

Galliford Try’s growth potential is very attractive. The consensus forecast from 4 analysts is extremely positive with earnings forecasted to rise significantly from today’s level of £1.033 to £1.436 over the next three years. This results in an annual growth rate of 17%, on average, which indicates an exceedlingly positive future in the near term.

Is GFRD’s share price justifiable by its earnings growth?

Stocks like Galliford Try, with a price-to-earnings (P/E) ratio of 6.67x, always catch the eye of investors on the hunt for a bargain. In isolation, this metric can be a bit too simplistic but in comparison to benchmarks, it tells us that GFRD is undervalued relative to the current GB market average of 16x , and undervalued based on its latest annual earnings update compared to the Construction average of 10.32x .

LSE:GFRD Price Estimation Relative to Market, April 8th 2019
LSE:GFRD Price Estimation Relative to Market, April 8th 2019

Galliford Try’s price-to-earnings ratio stands at 6.67x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. However, to properly examine the value of a high-growth stock such as Galliford Try, 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 6.67x and expected year-on-year earnings growth of 17% give Galliford Try an extremely low PEG ratio of 0.40x. Based on this growth, Galliford Try’s stock can be considered relatively cheap , based on fundamental analysis.

What this means for you:

GFRD’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 urge you to complete your research by taking a look at the following:

  1. Financial Health: Are GFRD’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 GFRD 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 GFRD’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.