Is It Too Late To Buy L&T Technology Services Limited (NSE:LTTS) At Its June Price?

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L&T Technology Services Limited (NSE:LTTS) is considered a high-growth stock, but its last closing price of ₹1713.3 left some investors wondering if this high future earnings potential can be rationalized by its current price tag. Below I will be talking through a basic metric which will help answer this question.

View our latest analysis for L&T Technology Services

What can we expect from LTTS in the future?

Analysts are predicting good growth prospects for L&T Technology Services over the next couple of years. The consensus forecast from 15 analysts is bullish with earnings per share estimated to surge from current levels of ₹74.06 to ₹98.606 over the next three years. On average, this leads to a growth rate of 10% each year, which signals a market-beating outlook in the upcoming years.

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

LTTS is trading at price-to-earnings (PE) ratio of 23.13x, which suggests that L&T Technology Services is undervalued based on its latest annual earnings update compared to the Professional Services average of 23.13x , and overvalued compared to the IN market average ratio of 15.94x .

NSEI:LTTS Price Estimation Relative to Market, June 13th 2019
NSEI:LTTS Price Estimation Relative to Market, June 13th 2019

L&T Technology Services’s price-to-earnings ratio stands at 23.13x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. However, to properly examine the value of a high-growth stock such as L&T Technology Services, 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 23.13x and expected year-on-year earnings growth of 10% give L&T Technology Services a quite high PEG ratio of 2.21x. This means that, when we account for L&T Technology Services’s growth, the stock can be viewed as overvalued , based on fundamental analysis.

What this means for you:

LTTS’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:

  1. Financial Health: Are LTTS’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 LTTS 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 LTTS’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.