Cipla Limited (NSE:CIPLA) is considered a high growth stock. However its last closing price of ₹522.1 left investors wondering whether this growth has already been factored into the share price. Let’s look into this by assessing CIPLA’s expected growth over the next few years.
What are the future expectations?
Cipla is poised for extremely high earnings growth in the near future. The consensus forecast from 27 analysts is extremely positive with earnings forecasted to rise significantly from today’s level of ₹17.487 to ₹30.59 over the next three years. This results in an annual growth rate of 23%, on average, which illustrates a highly optimistic outlook in the near term.
Can CIPLA’s share price be justified by its earnings growth?
CIPLA is available at a PE (price-to-earnings) ratio of 29.86x today, which tells us the stock is overvalued based on current earnings compared to the pharmaceuticals industry average of 19.76x , and overvalued compared to the IN market average ratio of 17.05x .
We understand CIPLA seems to be overvalued based on its current earnings, compared to its industry peers. However, to be able to properly assess the value of a high-growth stock such as Cipla, 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 29.86x and expected year-on-year earnings growth of 23% give Cipla a higher PEG ratio of 1.29x. So, when we include the growth factor in our analysis, Cipla appears slightly overvalued , based on its fundamentals.
What this means for you:
CIPLA’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 CIPLA’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 CIPLA 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 CIPLA’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.