Crompton Greaves Consumer Electricals Limited (NSE:CROMPTON) closed yesterday at ₹231.7, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s look into this by assessing CROMPTON’s expected growth over the next few years.
Can we expect CROMPTON to keep growing?
Crompton Greaves Consumer Electricals is poised for extremely high earnings growth in the near future. The consensus forecast from 20 analysts is extremely bullish with earnings per share estimated to surge from current levels of ₹5.646 to ₹8.652 over the next three years. This results in an annual growth rate of 20%, on average, which illustrates a highly optimistic outlook in the near term.
Is CROMPTON’s share price justified by its earnings growth?
Crompton Greaves Consumer Electricals is trading at price-to-earnings (PE) ratio of 41.04x, this tells us the stock is overvalued compared to the IN market average ratio of 17.21x , and overvalued based on current earnings compared to the Consumer Durables industry average of 24.1x .
We already know that CROMPTON appears to be overvalued when compared to its industry average. However, seeing as Crompton Greaves Consumer Electricals 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 41.04x and expected year-on-year earnings growth of 20% give Crompton Greaves Consumer Electricals a quite high PEG ratio of 2.05x. This tells us that when we include its growth in our analysis Crompton Greaves Consumer Electricals’s stock can be considered overvalued , based on its fundamentals.
What this means for you:
CROMPTON’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 CROMPTON’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.
- Valuation: What is CROMPTON worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether CROMPTON is currently mispriced by the market.
- 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 firstname.lastname@example.org.