Edelweiss Financial Services Limited (NSE:EDELWEISS): Is Growth Priced In?

Growth expectations for Edelweiss Financial Services Limited (NSE:EDELWEISS) are high, but many investors are starting to ask whether its last close at ₹170.3 can still be rationalized by the future potential. Below I will be talking through a basic metric which will help answer this question.

See our latest analysis for Edelweiss Financial Services

Why you should get excited about EDELWEISS future

One reason why investors are attracted to EDELWEISS is the high growth potential in the near future. The consensus forecast from 7 analysts is extremely positive with earnings per share estimated to surge from current levels of ₹11.374 to ₹20.982 over the next three years. This results in an annual growth rate of 28%, on average, which illustrates a highly optimistic outlook in the near term.

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

Edelweiss Financial Services is trading at quite low price-to-earnings (PE) ratio of 14.97x. This tells us the stock is undervalued relative to the current IN market average of 17.1x , and undervalued based on its latest annual earnings update compared to the capital markets average of 17.43x .

NSEI:EDELWEISS PE PEG Gauge November 23rd 18
NSEI:EDELWEISS PE PEG Gauge November 23rd 18

Given that EDELWEISS’s price-to-earnings of 14.97x lies below the industry average, this already indicates that the company could be potentially undervalued. But, to be able to properly assess the value of a high-growth stock such as Edelweiss Financial Services, 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 14.97x and expected year-on-year earnings growth of 28% give Edelweiss Financial Services a very low PEG ratio of 0.53x. Based on this growth, Edelweiss Financial Services’s stock can be considered relatively cheap , based on fundamental analysis.

What this means for you:

EDELWEISS’s current undervaluation could signal a potential buying opportunity to increase your exposure to the stock, or it you’re a potential investor, now may 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 highly recommend you to complete your research by taking a look at the following:

  1. Financial Health: Are 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.

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 editorial-team@simplywallst.com.