PetroChina Company Limited (HKG:857) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of HK$5.04 is based on unrealistic expectations. Let’s look into this by assessing 857’s expected growth over the next few years.
What can we expect from PetroChina in the future?Analysts are predicting good growth prospects for PetroChina over the next couple of years. The consensus forecast from 19 analysts is certainly positive with earnings forecasted to rise significantly from today’s level of CN¥0.287 to CN¥0.369 over the next three years. This indicates an estimated earnings growth rate of 11% per year, on average, which indicates a solid future in the near term.
Is 857’s share price justified by its earnings growth?
Stocks like PetroChina, with a price-to-earnings (P/E) ratio of 15x, 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 857 is overvalued compared to the HK market average ratio of 12.01x , and overvalued based on current earnings compared to the Oil and Gas industry average of 10.84x .
After looking at 857’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. But, to be able to properly assess the value of a high-growth stock such as PetroChina, 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 15x and expected year-on-year earnings growth of 11% give PetroChina a higher PEG ratio of 1.33x. This means that, when we account for PetroChina’s growth, the stock can be viewed as slightly overvalued , based on its fundamentals.
What this means for you:
857’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 857’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.
- Past Track Record: Has 857 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 857’s historicals for more clarity.
- 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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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.