Sparebanken Sør (OB:SOR): Is Growth Priced In?

Sparebanken Sør (OB:SOR) closed yesterday at NOK93, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.

See our latest analysis for Sparebanken Sør

Can we expect SOR to keep growing?

Sparebanken Sør’s growth potential is very attractive. Expectations from 4 analysts are extremely positive with earnings per share estimated to rise from today’s level of NOK10.087 to NOK10.761 over the next three years. This results in an annual growth rate of 30%, on average, which signals a market-beating outlook in the upcoming years.

Is SOR’s share price justifiable by its earnings growth?

Stocks like Sparebanken Sør, with a price-to-earnings (P/E) ratio of 9.22x, 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 13.52x , and overvalued based on current earnings compared to the Banks industry average of 9.19x .

OB:SOR Price Estimation Relative to Market, April 17th 2019
OB:SOR Price Estimation Relative to Market, April 17th 2019

After looking at SOR’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. But, 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 9.22x and expected year-on-year earnings growth of 30% give Sparebanken Sør an extremely low PEG ratio of 0.30x. So, when we include the growth factor in our analysis, Sparebanken Sør appears relatively cheap , based on the fundamentals.

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 highly recommend 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.