Is It Too Late To Buy Morses Club PLC (LON:MCL) At Its June Price?

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Morses Club PLC (LON:MCL) closed yesterday at £1.52, 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 Morses Club

What can we expect from MCL in the future?

Analysts are predicting good growth prospects for Morses Club over the next couple of years. The consensus forecast from 7 analysts is certainly positive with earnings per share estimated to rise from today’s level of £0.125 to £0.156 over the next three years. This results in an annual growth rate of 10%, on average, which indicates a solid future in the near term.

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

Morses Club is trading at quite low price-to-earnings (PE) ratio of 12.18x. This tells us the stock is undervalued relative to the current GB market average of 16.24x , and overvalued based on current earnings compared to the Consumer Finance industry average of 11.56x .

AIM:MCL Price Estimation Relative to Market, June 20th 2019
AIM:MCL Price Estimation Relative to Market, June 20th 2019

We understand MCL 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 Morses Club, 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 12.18x and expected year-on-year earnings growth of 10% give Morses Club a higher PEG ratio of 1.21x. This tells us that when we include its growth in our analysis Morses Club’s stock can be considered slightly overvalued , based on its fundamentals.

What this means for you:

MCL’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 MCL’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 MCL 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 MCL’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.