Looking at L&T Technology Services Limited’s (NSE:LTTS) fundamentals some investors are wondering if its last closing price of ₹1585.1 represents a good value for money for this high growth stock. Below I will be talking through a basic metric which will help answer this question.
What can we expect from L&T Technology Services in the future?Investors in L&T Technology Services have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. The consensus forecast from 7 analysts is certainly positive with earnings per share estimated to surge from current levels of ₹59.22 to ₹76.893 over the next three years. On average, this leads to a growth rate of 11.98% 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 26.77x, which suggests that L&T Technology Services is undervalued based on its latest annual earnings update compared to the professional services average of 26.77x , and overvalued compared to the IN market average ratio of 20.35x . This multiple is a median of profitable companies of 17 Professional Services companies in IN including Provestment Services, Husys Consulting and Choksi Laboratories.
L&T Technology Services’s price-to-earnings ratio stands at 26.77x, 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 26.77x and expected year-on-year earnings growth of 11.98% give L&T Technology Services a quite high PEG ratio of 2.23x. Based on this growth, L&T Technology Services’s stock can be considered overvalued , based on the fundamentals.
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:
- 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.
- 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.
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.