Garofalo Health Care S.p.A. (BIT:GHC) closed yesterday at €4, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s look into this by assessing GHC’s expected growth over the next few years.
Should you get excited about GHC’s future?
The excitement around Garofalo Health Care’s growth potential is not unfounded. The consensus forecast from 2 analysts is extremely positive with earnings per share estimated to surge from current levels of €0.251 to €0.280 over the next three years. This indicates an estimated earnings growth rate of 17% per year, on average, which illustrates a highly optimistic outlook in the near term.
Is GHC available at a good price after accounting for its growth?
Stocks like Garofalo Health Care, with a price-to-earnings (P/E) ratio of 15.95x, always catch the eye of investors on the hunt for a bargain. In isolation, this metric can be a bit too simplistic but in comparison to benchmarks, it tells us that GHC is undervalued relative to the current IT market average of 15.98x , and undervalued based on its latest annual earnings update compared to the Healthcare average of 25.75x .
Garofalo Health Care’s price-to-earnings ratio stands at 15.95x, 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 Garofalo Health Care, 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 15.95x and expected year-on-year earnings growth of 17% give Garofalo Health Care a low PEG ratio of 0.93x. So, when we include the growth factor in our analysis, Garofalo Health Care appears fairly valued , based on fundamental analysis.
What this means for you:
GHC’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 urge you to complete your research by taking a look at the following:
- Financial Health: Are GHC’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 GHC 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 GHC 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.