Biffa plc (LON:BIFF) is considered a high growth stock. However its last closing price of £2.4 left investors wondering whether this growth has already been factored into the share price. Let’s look into this by assessing BIFF’s expected growth over the next few years.
Where’s the growth?Analysts are predicting good growth prospects for Biffa over the next couple of years. Expectations from 5 analysts are buoyant with earnings forecasted to rise significantly from today’s level of £0.124 to £0.173 over the next three years. This results in an annual growth rate of 11.69%, on average, which illustrates an optimistic outlook in the near term.
Is BIFF available at a good price after accounting for its growth?
Biffa is available at price-to-earnings ratio of 19.29x, showing us it is undervalued based on its latest annual earnings update compared to the commercial services average of 21.15x , and overvalued compared to the GB market average ratio of 18.23x . This multiple is a median of profitable companies of 24 Commercial Services companies in GB including Mortice, Communisis and Babcock International Group.
Biffa’s price-to-earnings ratio stands at 19.29x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. But, since Biffa is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 19.29x and expected year-on-year earnings growth of 11.69% give Biffa a higher PEG ratio of 1.65x. This means that, when we account for Biffa’s growth, the stock can be viewed as a bit overvalued , based on the fundamentals.
What this means for you:
BIFF’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 urge you to complete your research by taking a look at the following:
- Financial Health: Are BIFF’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.
- Valuation: What is BIFF worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether BIFF is currently mispriced by the market.
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
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 firstname.lastname@example.org.