Does The Hype Around Seplat Petroleum Development Company Plc’s (LON:SEPL) Growth Justify Its April Share Price?

Growth expectations for Seplat Petroleum Development Company Plc (LON:SEPL) are high, but many investors are starting to ask whether its last close at £1.21 can still be rationalized by the future potential. Below I will be talking through a basic metric which will help answer this question.

View our latest analysis for Seplat Petroleum Development

What are the future expectations?

Analysts are predicting good growth prospects for Seplat Petroleum Development over the next couple of years. The consensus forecast from 3 analysts is buoyant with earnings forecasted to rise significantly from today’s level of $0.258 to $0.270 over the next three years. On average, this leads to a growth rate of 13% each year, which illustrates an optimistic outlook in the near term.

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

Seplat Petroleum Development is trading at quite low price-to-earnings (PE) ratio of 6.15x. This tells us the stock is undervalued relative to the current GB market average of 15.79x , and undervalued based on its latest annual earnings update compared to the Oil and Gas average of 9.24x .

LSE:SEPL Price Estimation Relative to Market, April 2nd 2019
LSE:SEPL Price Estimation Relative to Market, April 2nd 2019

Given that SEPL’s price-to-earnings of 6.15x lies below the industry average, this already indicates that the company could be potentially undervalued. However, seeing as Seplat Petroleum Development is perceived as a high-growth stock, we must also account for its earnings growth, which is captured in the PEG ratio. A PE ratio of 6.15x and expected year-on-year earnings growth of 13% give Seplat Petroleum Development an extremely low PEG ratio of 0.47x. This means that, when we account for Seplat Petroleum Development’s growth, the stock can be viewed as relatively cheap , based on its fundamentals.

What this means for you:

SEPL’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:

  1. Financial Health: Are SEPL’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 SEPL 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 SEPL’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.