Is Sparebanken Sør (OB:SOR) Undervalued After Accounting For Its Future Growth?

Growth expectations for Sparebanken Sør (OB:SOR) are high, but many investors are starting to ask whether its last close at NOK95 can still be rationalized by the future potential. Below I will be talking through a basic metric which will help answer this question.

Check out our latest analysis for Sparebanken Sør

Has the SOR train slowed down?

According to the analysts covering the company, the following few years should bring about good growth prospects for Sparebanken Sør. Expectations from 4 analysts are bullish with earnings forecasted to rise significantly from today’s level of NOK9.662 to NOK10.569 over the next three years. This indicates an estimated earnings growth rate of 15% per year, on average, which indicates a solid future in the near term.

Is SOR available at a good price after accounting for its growth?

Stocks like Sparebanken Sør, with a price-to-earnings (P/E) ratio of 9.83x, 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 SOR is undervalued relative to the current NO market average of 12.29x , and overvalued based on current earnings compared to the Banks industry average of 7.9x .

OB:SOR Price Estimation Relative to Market, August 23rd 2019
OB:SOR Price Estimation Relative to Market, August 23rd 2019

We understand SOR seems to be overvalued based on its current earnings, compared to its industry peers. However, seeing as Sparebanken Sør is perceived as a high-growth stock, we must also account for its earnings growth, which is captured in the PEG ratio. A PE ratio of 9.83x and expected year-on-year earnings growth of 15% give Sparebanken Sør a very low PEG ratio of 0.66x. Based on this growth, Sparebanken Sør’s stock can be considered relatively cheap , based on fundamental analysis.

What this means for you:

SOR’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:

  1. Financial Health: Are SOR’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 SOR 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 SOR’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.

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 editorial-team@simplywallst.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.