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TKH Group N.V. (AMS:TWEKA) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of €53.5 is based on unrealistic expectations. Below I will be talking through a basic metric which will help answer this question.
Should you get excited about TWEKA’s future?
According to the analysts covering the company, the following few years should bring about good growth prospects for TKH Group. Expectations from 6 analysts are bullish with earnings per share estimated to rise from today’s level of €2.584 to €3.792 over the next three years. This results in an annual growth rate of 13%, on average, which signals a market-beating outlook in the upcoming years.
Is TWEKA available at a good price after accounting for its growth?
TKH Group is available at price-to-earnings ratio of 20.7x, showing us it is undervalued based on its latest annual earnings update compared to the Electrical average of 20.82x , and overvalued compared to the NL market average ratio of 17.17x .
Given that TWEKA’s price-to-earnings of 20.7x lies below the industry average, this already indicates that the company could be potentially undervalued. But, to properly examine the value of a high-growth stock such as TKH Group, 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 20.7x and expected year-on-year earnings growth of 13% give TKH Group a higher PEG ratio of 1.64x. Based on this growth, TKH Group’s stock can be considered a bit overvalued , based on fundamental analysis.
What this means for you:
TWEKA’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 highly recommend you to complete your research by taking a look at the following:
- Financial Health: Are TWEKA’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 TWEKA 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 TWEKA’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.
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 firstname.lastname@example.org. 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.