Is Hochschild Mining plc (LON:HOC) Undervalued After Accounting For Its Future Growth?

Hochschild Mining plc (LSE:HOC) is considered a high growth stock. However its last closing price of £2.195 left investors wondering whether this growth has already been factored into the share price. Below I will be talking through a basic metric which will help answer this question. See our latest analysis for Hochschild Mining

How is HOC going to perform in the future?

Hochschild Mining is poised for significantly high earnings growth in the near future. Expectations from 6 analysts are extremely positive with earnings forecasted to rise significantly from today's level of $0.082 to $0.18 over the next three years. This indicates an estimated earnings growth rate of 34.48% per year, on average, which illustrates a highly optimistic outlook in the near term.

Can HOC's share price be justified by its earnings growth?

HOC is trading at quite a high price-to-earnings (PE) ratio of 36.21x. This tells us that Hochschild Mining is overvalued compared to the GB market average ratio of 17.49x , and overvalued based on current earnings compared to the metals and mining industry average of 13.1x .

We already know that HOC appears to be overvalued when compared to its industry average. But, to properly examine the value of a high-growth stock such as Hochschild Mining, 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 36.21x and expected year-on-year earnings growth of 34.48% give Hochschild Mining an acceptable PEG ratio of 1.05x. So, when we include the growth factor in our analysis, Hochschild Mining appears slightly overvalued , based on the fundamentals.

What this means for you:

HOC'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: Is HOC’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 HOC 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 HOC'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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.