Does The Hype Around Edelweiss Financial Services Limited's (NSE:EDELWEISS) Growth Justify Its January Share Price?

Edelweiss Financial Services Limited (NSEI:EDELWEISS) is considered a high growth stock but its last closing price of ₹280.05 made some investors wonder if it can be still rationalized by the high growth potential. Let’s look into that by diving into some good old fundamentals. View our latest analysis for Edelweiss Financial Services

How is EDELWEISS going to perform in the future?

Edelweiss Financial Services's growth potential is very attractive. Expectations from 6 analysts are very high, with earnings expected to rise from today's level of ₹8.621 to ₹17.989 over the next couple of years. This illustrates a relatively optimistic outlook in the near term, with a relatively solid earnings per share growth rate of 108.66% over the next few years.

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

As Warren Buffett’s right-hand man Charlie Munger said, “No matter how wonderful a business is, it’s not worth an infinite price.” Edelweiss Financial Services is available at price-to-earnings ratio of 32.47x, showing us it is overvalued compared to the IN market average ratio of 28.03x , and overvalued based on current earnings compared to the capital markets industry average of 28.14x .

We already know that EDELWEISS appears to be overvalued when compared to its industry average. However, since Edelweiss Financial Services is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. PE ratio of 32.47x and predicted 41.75% growth in earnings next year give Edelweiss Financial Services an acceptable PEG ratio of 1.13x. This means that, when we account for Edelweiss Financial Services's growth, the stock can be viewed as slightly overvalued , based on fundamental analysis.

What this means for you:

EDELWEISS'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: Is EDELWEISS’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 EDELWEISS 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 EDELWEISS'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.